Question 1

CASE SCENARIO: Global Freightways PLC
Global Freightways PLC is a cross-border logistics and shipping multinational. You are the audit senior for the year ended 31 March 20X7. The company has complex revenue recognition policies due to shipments spanning multiple accounting periods. Furthermore, they hold significant foreign currency bank accounts. Global Freightways relies heavily on a bespoke, automated IT system called 'Track-It' to record shipments, calculate freight charges, and generate invoices automatically based on weight and distance.

QUESTION:
Because shipments can take weeks to arrive, revenue should only be recognized when the performance obligation is satisfied (e.g., upon delivery). Which financial statement assertion is most at risk if Global Freightways recognizes revenue when the ship leaves the port rather than when it arrives at the destination?

Accepted Answer

Identify the issue: timing of revenue recognition around the year-end. The assertion dealing with correct accounting periods is cut-off.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Selecting Occurrence. While related (the revenue hasn't truly 'occurred' yet under IFRS 15), Cut-off is the specific assertion dealing with the timing of transactions across period boundaries.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA AA — Audit and Assurance Practice Exam 6

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