SBR knowledge Flashcards
Equipment in the gyms will need to be replaced on average every three years
IAS 16 requires that significant components of property, plant, and equipment be depreciated
separately based on their cost, useful life, and residual value. There is a risk that ships are not
broken down into their component parts for proper depreciation. For instance, gym equipment, if
significant, should be depreciated over three years, separate from other components like the ship’s
exterior or engine.
Chairman of the Group, Max Draco, is also the chairman of Vela Shipbuilders Co, and his son is the
company’s chief executive officer.
IAS 24 states that a related party relationship arises when an individual has control, joint control, or significant influence over two reporting entities, or is part of key management personnel in both.
The relationship between the Group and Vela Shipbuilders Co is highlighted by the fact that Max
Draco’s son is the CEO of Vela.
IAS 24 requires disclosures about the nature of related party relationships, including transactions
and outstanding balances, to understand their potential impact on financial statements.
There is an audit risk that the Group’s purchases from Vela Shipbuilders Co may not be properly disclosed.
Qualifying asset
requires a substantial period to prepare for its intended use or sale
A further three ships are currently under construction by Vela Shipbuilders Co. The Group has taken out a loan with a fixed interest rate to finance this capital expenditure.
The ships under construction qualify as qualifying assets as defined by IAS 23 Borrowing Costs.
IAS 23 mandates that borrowing costs directly attributable to the acquisition, construction, or production of a qualifying asset must be capitalized
Audit risk = interest costs may have been incorrectly classified as a finance costs rather than being capitalized, potentially leading to an understatement of both assets and profits for the year.
The full amount of the ticket price is transferred to revenue when the cruise starts irrespective on the duration of the cruise.
The policy of recognizing all revenue from a ticket sale when the cruise starts may not comply with IFRS 15, as the Group fulfills its obligations over time, which can extend up to six weeks for some cruises.
Audit risk = cut-off issue where recognizing all revenue at the start may lead to overstated revenue and understated liabilities.
The remaining 15% of revenue is derived from on‐board sales of food, drinks, entertainment and other items to passengers.
Management monitor this revenue stream closely as it achieves a high gross profit margin, and staff are encouraged to maximise these sales to customers.
According to IFRS 8 Operating Segments, an operating segment is defined as a component that engages in business activities resulting in revenue and expenses, whose operating results are regularly reviewed by the entity’s chief operating decision maker, and for which discrete financial information is available.
This appears to apply in this case.
A reportable segment exists if its revenue exceeds 10% of the combined revenue of all operating segments.
Consequently, if on-board sales meet the criteria of an operating segment, there is a risk of incomplete revenue disclosure for reportable segments if it is not adequately reflected in the financial statement notes.
Last week, the governments of several countries which form a major part of the Pioneer Cruise itineraries withdrew their operating licences with immediate effect
Audit risk arises from the potential impairment of licenses due to their withdrawal by governments in some countries where the Group operates Pioneer cruises. While this withdrawal seems temporary, it indicates possible impairment, and the licenses may need to be written off entirely.
Management should conduct an impairment review per IAS 36 to determine the recoverable amount of the licenses. If this amount is less than the carrying value, an impairment loss must be recognized to avoid overstating intangible assets and profits.
Last month, the Group suffered a cyber‐security attack in which the personal information of 1,400 customers, including their credit card details, were stolen.
audit risk = data corruption
The cyber-security attack may have led to corrupted or lost data within the sales system, especially if customer details were linked to the accounting system. This poses an audit risk that reported revenue figures could be inaccurate, incomplete, or invalid. While the issue may be isolated to the sales system
There is a possibility that other financial figures could also be impacted thus understating sales.
Last month, the Group suffered a cyber‐security attack in which the personal information of 1,400 customers, including their credit card details, were stolen.
audit risk = fine/penalties
The cyber-security incident may lead to fines or penalties, as the Group appears to have
inadequately addressed the risk, leaving customer data vulnerable. Under IAS 37, the Group may need to recognize a provision or disclose a contingent liability, depending on the likelihood and materiality of any payments.
The audit risk involves understated liabilities, understated expenses, or incomplete disclosures if the required provisions are not recognized or properly disclosed in the financial statement notes.
