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Risks IAS 38 requires Research cost to be expensed to P&L and development costs to be capitalised, as intangible asset. If Research costs have been incorrectly classified, there is a risk that intangible asset will be overstated and expenses understated. Obtain breakdown of the expenditure and verify that it relates to the development of the new product. Review doc to determine whether it relates to research or development stage. Discuss the treatment with fin director. IAS 16 does not allow servicing and maintenance cost to be capitalised as part of the cost of non-current asset. The servicing cost should be charged to P&L pro rata over 5 yrs (only 1/5). Therefore, PPE and profits are overstated and prepayments understated. (not related to bringing the asset to its working condition) Review the purchase doc to confirm the exact cost of the servicing and it relates to 5 yr period. Discuss the acc treatment with fin director and necessary adjustments to ensure treatment is in accordance with IAS 16. In order to ensure correct disclosure, the loan needs to be correctly split between current and non-current liabilities. Current and non-current liabilities will be misstated if the split is incorrect. The audit team would need to confirm the receipt of the loan finance. Review of the current and non-current liabilities split should be undertaken to ensure its compliance with accounting standards. Security details to be agreed to the bank confirmation letter. In order to maximise the success Co will need to present fin statements which show the best possible position and performance. Therefore, the directors have an incentive to manipulate the fin statements by overstating the revenue, profits and assets. Adequate time to be allocated for team to obtain an understanding of the Co and significant risks of overstatement of rev, pr and ass. Team needs to maintain prof scepticism and be alert to risk of manipulation.Estimates and judgements to be reviewed. Receivables collection period increased. Increase could be due to credit terms, but could also be due to increased risk over the recoverability of receivables. Receivables may be overstated and expenses understated. Review and test the controls how Co identifies the receivable balances and procedures around credit control to ensure they are operating effectively. Extended post yr-end cash receipt testing and review of the aged rec ledger to be performed to asses valuation. Sales need to be removed from the fin statements and refund liability recognised. Inventory will need to be reinstated or written down value. Failing to account for this correctly could result in overstated revenue, understated liabilities and misstated inventory. Review the recalled sales list and agree the sales have been removed from revenue and inventory included. if refunds have not been paid before Yr end, review draft fin statement to confirm it is included within current liabilities. There is a risk that inventory may be overvalued as its NRV may be below cost. Testing should be undertaken to confirm cost and NRV and goods valued correctly. Revenue has significantly increased from 16% to 36% un the Yr, and Gross Margin has increased. This could be due to overstatement of revenue.During Audit a detailed breakdown will be obtained, discussed with man’t and tested in order to understand the increase. Cut-Off Testing should be undertaken to verify that revenue is recorded in correct period. Indicators that Co could be experiencing reduction in its cash flow which could result in going concern difficulties/uncertainties. This may not be discussed in fin statements. Detailed going concern to be performed during audit including review on the cash flow forecast. These should be discussed with man’t to ensure that going concern basis is reasonable. Outsourced. A detection risk arises for evidence to confirm the completeness and accuracy of controls over the sales and receivables cycle and balances at Year end. Discuss with man’t the extent of records maintained at Co. Tean should consider contacting the service organisation’s auditors to confirm the level of control. If any errors occurred during transfer process, these could result in sales and receivables being under/overstated. Discuss with man’t the trf process and controls undertaken to ensure completeness and accuracy of data. Undertake test of controls and perform substantive testing on transfer of info from old to new system. There is a increased risk of errors within trade payables and balances may be under or overstated. Team should increase their testing on trade payables, incl supplier statement reconciliation focusing on trade payables completeness. Risk that man’t might feel under the pressure to manipulate the results through the judgements taken or use of provisions. Audit team will need to be alert to the risk and increased professional scepticism. They will need to review the judgement decisions and compare treatment against prior years. Bonus. This may lead to sales cut-off errors, with employees aiming to maximise their Year bonus, Risk that sales may be overstated Increased sales cut-off testing will be performed along with review of post year-end sales returns as they may indicate cut-off errors. Significant increase in sales, but not in Gross margin. There is a risk that sales may be overstated. Detailed breakdown of sales will be obtained, discussed with man’t and tested in order to understand the increase in sales. There is a increase in expenses which may be due to the bonus and advert campaign, but could be related to misclassification of costs. The classification between cost of sales and operating expenses will be compared with prior year to ensure consistency. The additional overheads may not be production related and therefore should not be included in inventory. The risk is that inventory is overvalued The change in inventory policy will be discussed with man’t and the review of the additional overheads included performed to ensure that these are of a production nature. Detailed cost and net realisable value testing to be performed and aged inventory report to be reviewed to asses whether the inventory requires writing down. Receivables may not be recoverable. There is a risk that receivables are overstated. Extended post year-end cash receipts testing and a review of the aged receivables ledger to be performed to asses valuation. There is a risk of inadequate disclosure of going concern uncertainties in the fin statements. Detailed GC testing to be performed during the audit and discussed with the management to ensure that GC basis is reasonable,