ADVANCED LEVEL EXAMINATION

MONDAY 23 JULY 2018

(3½ HOURS)

CORPORATE REPORTING
This exam consists of three questions (100 marks).

Marks breakdown

Question 1 40 marks
Question 2 30 marks
Question 3 30 marks

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Copyright © ICAEW 2018. All rights reserved.

QUESTION 1
EC Ltd is the UK parent company of a diversified manufacturing group. EC Ltd supplies water
irrigation systems.

You are Jess Rowe, and you work for Myner LLP, a firm of ICAEW Chartered Accountants.
Myner LLP has been responsible for the audit of EC Ltd and the companies in the EC group
for several years.

You are assigned to the audit of the EC group for the year ended 31 May 2018. You report to
Gaynor Fodes, the EC audit engagement partner. The individual company audits of EC Ltd
and its subsidiaries for the year ended 31 May 2018 are in progress. Gaynor gives you the
following briefing and instructions:

“The EC Ltd audit team has identified three audit issues for my attention (Exhibit 1). These
issues involve judgements made by the EC Ltd directors which increase audit risk and
therefore require extra audit time. I will be discussing these issues with the EC Ltd directors
at a meeting next week.

“I have provided you with the EC group draft summary consolidated statement of profit or
loss and notes (Exhibit 2). This statement of profit or loss does not include any adjustments
arising from the three audit issues identified by the EC Ltd audit team.”

Instructions

Gaynor provides the following instructions.

(1) For each of the three audit issues:

(a) Explain and set out the correct financial reporting treatment in the EC group
financial statements and EC Ltd individual financial statements. Ignore the tax
impact arising from any adjustments.

(b) Set out the key audit risks and the relevant audit procedures that we should
perform.

(2) Prepare a revised summary consolidated statement of profit or loss including, where
appropriate, your adjustments for the three audit issues.

(3) Explain briefly, without calculations, the impact of your adjustments on the income tax
expense.

Requirement
Respond to Gaynor’s instructions.
Total: 40 marks

ICAEW/J18 Page 2 of 17
Exhibit 1: Audit issues identified by EC Ltd audit team
Issue 1: Disposal of shares in Luka Ltd

In 2008, EC Ltd paid £10.5 million for 75,000 shares in Luka Ltd, which represented 75% of
Luka’s 100,000 issued ordinary shares. An unconnected Japanese company owns 25% of
Luka’s issued ordinary shares.

Luka Ltd manufactures water pumps.

On 1 December 2017, EC Ltd sold 60,000 of its shares in Luka for £7.9 million to Walter
Brown, Luka’s CEO. The fair value of EC Ltd’s remaining 15% investment in Luka was
estimated to be £1 million at that date.

The directors have made a judgement that EC Ltd no longer has control over Luka and it
should not consolidate Luka as a subsidiary. They also judged that EC Ltd does not have
significant influence over Luka. EC Ltd’s financial statements and the EC draft consolidated
financial statements for the year ended 31 May 2018 show an investment in 15,000 shares in
Luka at cost of £2.1 million.

In the draft consolidated financial statements for the year ended 31 May 2018, the directors
have treated Luka as a discontinued operation as they believe that Luka represents a major
line of business from which EC has now withdrawn. Luka’s loss for the six-month period to
1 December 2017 has been presented as one figure in the consolidated statement of profit or
loss. A loss of £500,000 on disposal of the shares in Luka is also included. This is calculated
as proceeds of £7.9 million less cost of £8.4 million, being £10.5 million x 60,000/75,000
shares (Exhibit 2, note 2).

We believe that the financial reporting treatment of the sale of Luka shares may not be
correct.

The following information was noted during our audit procedures:

 Two of the four members of Luka’s board are also EC Ltd board directors. The Japanese
company is represented by one director on the Luka board.
 Luka buys filter systems from WFT Ltd, a 100%-owned subsidiary of EC Ltd. The filter
system is designed specifically for Luka’s water pumps.
 Luka continues to use the EC group’s shared service centre, which provides Luka with
marketing and accounting services for a monthly fee.

Issue 2: Contingent liability

EC Ltd competes internationally for large contracts to supply irrigation systems for farms. The
contracts are with governments and local contractors. Local law often requires EC Ltd to use
commercial intermediaries and, in some countries, the tender process is open to corruption.
EC Ltd has control procedures to ensure that all contracts are compliant with UK and local
law. Breaches of laws can lead to fines and restrictions on future business.

In January 2018, a fraud investigation commenced into bribery and corruption, in a country in
which EC Ltd operates. EC Ltd is being investigated and is cooperating with the authorities.

ICAEW/J18 Page 3 of 17
We reviewed minutes of EC Ltd directors’ meetings which show that the fraud investigation
was discussed on 12 January 2018. The directors are satisfied that EC Ltd’s control
procedures have mostly been complied with, but that there could be isolated occurrences
where intermediaries were paid sums of money by EC Ltd personnel to secure contracts.
Advice from EC Ltd’s internal legal department was presented to the directors as follows:

 Similar investigations in other countries have taken five years to be resolved.

 Estimates of the likelihood of EC Ltd being found liable for fines are as follows:

Estimate of fines Probability

No fines payable 52%
£1.0 million 38%
£1.5 million 10%

The directors have made a judgement that because the investigation is ongoing and it is
difficult to identify if, or when, any fines will be payable, only a contingent liability note should
be included in the financial statements for the year ended 31 May 2018.

The board minutes also record that future operating losses caused by the restriction of trade
during the anticipated five-year investigation are expected to be £100,000 each year,
regardless of the outcome of the fraud investigation. Therefore, a provision of £433,000
(using a 5% pa interest rate for the time value of money) is included in operating expenses in
the financial statements for the year ended 31 May 2018.

Issue 3: Sale of manufacturing division in Spain

EC Ltd owns a manufacturing division in Spain which consists of a factory, an office building
and plant and equipment. The division makes water pumps which EC Ltd uses for its
irrigation systems. Because of wage increases in Spain, it is now cheaper for EC Ltd to buy a
similar pump from a UK supplier. Therefore, on 1 March 2018, the EC Ltd board decided to
sell some of the Spanish division’s assets. The carrying amounts of the division’s property,
plant and equipment are as follows:

Factory Office Plant and

(Including (Including equipment
land) land)
£’000 £’000 £’000
Cost at 31 May 2017 and 31 May 2018 4,385 4,640 4,850

Accumulated depreciation at 1 June 2017 (685) (800) (1,986)

Depreciation for the year ended 31 May 2018 (137) (160) (286)

Carrying amount at 31 May 2018 3,563 3,680 2,578

The factory and office buildings are depreciated over 25 years with zero residual values and
plant and equipment is depreciated at 10% pa on a reducing balance basis.

ICAEW/J18 Page 4 of 17
On 1 March 2018, a surveyor in Spain valued the factory (including land) and office (including
land), in euro, as follows:

€’000 Notes on valuation method

Factory 5,040 The valuation is based on the price per

square metre achieved in the sale of a similar
property in February 2018.

Office 5,570 As no similar properties have recently been

sold, the valuation is based on forecast rental
income per square metre and occupancy
rates.

EC Ltd advertised the factory for sale in March 2018 and expects to sell it within six months.
EC Ltd decided that it would achieve a higher return by renting out the office building. On
1 March 2018, EC Ltd signed a three-year agreement to lease the office building to an
unconnected company. EC Ltd’s accounting policy is to recognise investment properties at
fair value.
On 30 June 2018, EC Ltd received an offer from a Spanish company to buy the plant and
equipment for €2,519,000.
Exchange rates for the € are:

1 March 2018 £1 = €1.20

31 May 2018 £1 = €1.10
30 June 2018 £1 = €1.12

The directors told the audit team that, because of the uncertainty regarding the recoverable
amount of the manufacturing division’s assets, no adjustments have been made to EC Ltd’s
non-current assets in the draft consolidated financial statements at 31 May 2018.

ICAEW/J18 Page 5 of 17
Exhibit 2: EC group − draft summary consolidated statement of profit or loss for the
year ended 31 May 2018

Continuing operations £’000

Revenue 31,170

Profit before tax 1,896

Income tax expense (Note 1) (380)
Profit from continuing operations 1,516

Discontinued operations

Loss from discontinued operations (Note 2) (1,250)

Profit for the year 266

Note 1 − Income tax expense

The income tax expense includes adjustments for current tax and deferred tax at 20%.
Income tax is calculated for each group company based on 20% of the accounting profit,
except for the following tax rules relating to non-current assets:
 No tax implications arise from a profit or loss on disposal of shares.
 No tax relief is given for a depreciation expense or an impairment charge for buildings or
plant and equipment.
 Tax depreciation is available for purchases of plant and equipment. No tax depreciation
is available for buildings.
 Tax is payable on gains when a building is sold and is calculated based on the difference
between the disposal proceeds and the original cost.

Note 2 – Loss from discontinued operations of Luka

On 1 December 2017, EC Ltd sold 60,000 of its shares in Luka. Luka’s loss for the six-month
period from 1 June 2017 to 1 December 2017, together with the loss on the disposal of these
shares, are presented as a single line in the statement of profit or loss as discontinued
operations. This comprises:
£’000

Loss before taxation (890)

Income tax 140
Loss after taxation (750)

Loss on disposal of shares in Luka (500)

Loss from discontinued operations (1,250)

Luka’s net assets at 31 May 2018 were £9.25 million. Luka’s revenue for the year ended
31 May 2018 was £15 million. It made a loss of £1.5 million after tax for the year ended 31
May 2018. Luka’s revenue and loss arise evenly throughout the year. Goodwill arising on the
consolidation of Luka was fully impaired at 1 June 2017. EC Ltd measures non-controlling
interests using the proportion of net assets method.

ICAEW/J18 Page 6 of 17
QUESTION 2

Raven plc is an unlisted company which manufactures electrical products.

You are an ICAEW Chartered Accountant. You have just been appointed as financial
controller at Raven. The previous financial controller left in July 2017 and, since then,
Raven’s accounting has been under the temporary control of Simon, a part-qualified
accountant.

Simon has prepared draft financial statements for the year ended 30 April 2018 with extracts
provided in Exhibit 1. Simon has been unable to deal with some complex financial reporting
matters and has left you notes on the issues that require further work (Exhibit 2).

Requirements

(1) Explain the appropriate financial reporting treatment for each of the items in Simon’s
notes (Exhibit 2) and set out the adjusting journal entries required.

(2) Prepare revised financial statement extracts which include your adjustments.

(3) Explain the implications of the new leasing financial reporting standard, IFRS 16
Leasing for Raven’s future financial statements in respect of the sale and leaseback of
Raven’s administration building.

Total: 30 marks

Ignore current tax and deferred tax

ICAEW/J18 Page 7 of 17
Exhibit 1 – Raven plc: Extracts from draft financial statements – prepared by Simon

Extracts from statement of comprehensive income for the year ended 30 April 2018

£’000
Profit before tax 2,300

Other comprehensive income −

Extracts from statement of financial position at 30 April 2018

Notes £’000
(see Exhibit 2)
Non-current assets
Property, plant and equipment 3 and 4 53,860
Suspense account − one 1 6,757
Financial asset 1 706
61,323

Current assets 17,859

TOTAL ASSETS 79,182

Equity
Share capital (£1 ordinary shares) 200
Retained earnings 25,920
Revaluation reserve 3 and 4 6,200
Cash flow hedge reserve 1 706
Other reserves 600
33,626
Non-current liabilities
Loans 18,650
Pension - net defined benefit liability 5 136
Suspense account − two 4 7,000
25,786

Current liabilities 2 19,770

TOTAL EQUITY AND LIABILITIES 79,182

ICAEW/J18 Page 8 of 17
Exhibit 2 – Notes on financial reporting issues – prepared by Simon

(1) Cash flow hedge

On 1 March 2017, Raven signed an agreement to purchase a new machine from a

supplier in Ruritania, where the currency is the Ruritanian dollar (R$). The machine,
costing R$50 million, was delivered and paid for on 31 July 2017. On 1 March 2017, to
provide a hedge against exchange rate movements, Raven entered into a forward
contract to buy R$50 million on 31 July 2017 at a rate of £1 = R$7.4. All necessary
documentation was prepared for hedge accounting and the contract was designated as a
cash flow hedge.

In respect of the forward contract, a financial asset of £705,930 was recognised in the
statement of financial position at 30 April 2017. An equal amount was recognised,
through other comprehensive income, in a cash flow hedge reserve.

This was the first time that Raven had designated a hedging arrangement.

On 31 July 2017, the machine was purchased as planned and the forward contract
settled. On that date, the following journal entries were made:

£
DR Suspense account − one (R$50,000,000/5.7) 8,771,930
CR Cash 8,771,930

DR Cash 2,015,173
CR Suspense account − one 2,015,173

The net debit to suspense account − one was £6,756,757. No further entries have been
made in respect of the machine purchase or the cash flow hedge. The machine is to be
depreciated on a straight-line basis over five years, assuming zero residual value.

Spot and forward exchange rates were as follows:

Spot Forward
(for delivery on
31 July 2017)
1 March 2017 £1= R$7.3 £1= R$7.4
30 April 2017 £1= R$6.5 £1= R$6.7
31 July 2017 £1= R$5.7 £1= R$5.7

(2) Issue of ordinary shares

On 1 May 2017, Raven had 200,000 £1 ordinary shares in issue.

On 1 November 2017, Ester Ltd, one of Raven’s suppliers, agreed that each month it
would supply goods at a fair value of £2,000 in exchange for 50 new £1 shares in Raven.
This agreement is for a period of two years until 31 October 2019.

As a result, in the year ended 30 April 2018, 300 £1 ordinary shares were issued to Ester.
No accounting entry has yet been made in respect of the share issue, but the following

ICAEW/J18 Page 9 of 17
 entry has been made in respect of goods purchased from Ester between 1 November
2017 and 30 April 2018:

£
DR Cost of sales 12,000
CR Trade payables 12,000

(3) Non-current assets: fixed production line

Raven has a fixed production line. It has a policy of revaluing this production line because
of its specialist nature. No annual transfer for depreciation is made from revaluation
reserve to retained earnings.

This production line cost £8 million on 1 May 2012. It was to be depreciated on a straight-
line basis over ten years, with an estimated nil residual value. The asset was revalued on
30 April 2015 to £6.3 million. The asset’s estimated useful life and residual value were
unchanged.

An impairment review of the asset took place on 30 April 2018, at which date the
production line had an estimated fair value less costs to sell of £2.6 million and a value in
use of £2.8 million. No impairment has been recognised in respect of this fixed
production line in the draft financial statements.

Depreciation on the production line has been correctly calculated for the year ended
30 April 2018 before taking into account any revaluation or impairments.

(4) Leased asset: administration building

Because of a shortage of cash in the business, Raven’s directors decided to sell the
company’s administration building for £7 million on 1 May 2017, leasing it back
immediately from the building’s new owners for a period of 10 years. Raven does not
have an option to buy back the building.

The market value of the building on 1 May 2017 was estimated by an independent
surveyor to be £9 million. The carrying amount of the building immediately before the
sale was £10 million.

Raven has a policy of revaluing its land and buildings. The revaluation reserve includes
an amount of £1 million in respect of this building. No annual transfers for depreciation
are made from revaluation reserve to retained earnings.

The receipt of cash of £7 million on 1 May 2017 was debited to cash and credited to
Suspense account − two. No other accounting entries have been made in respect of the
disposal of the building.

The building’s lease requires an annual rental payment of £540,000, payable in advance
every 1 May. The first payment was made on 1 May 2017 and was debited to rental
expenses in profit or loss. The payment of £540,000 represents an annual market rate for
the lease of the building. Raven expects to continue to occupy the building, which has a
remaining useful life of 50 years, for the next 10 years.

ICAEW/J18 Page 10 of 17
 As a separate matter, the CEO has heard about a new leasing standard and has asked
about the implications for future financial statements in respect of this lease.

(5) Pension scheme

Raven operates a defined benefit pension scheme for its directors.

On 1 May 2017, the fair value of the pension scheme assets was £2,830,000 and the
present value of the pension scheme obligations was £2,966,000, resulting in a net
defined benefit liability in the statement of financial position at that date of £136,000.

During the year ended 30 April 2018, the scheme received contributions of £575,000
from Raven. This amount has been debited to staff costs.

According to Raven’s actuary, the current service cost for the year ended 30 April 2018
was £390,000. Benefits were improved during the year resulting in past service costs of
£120,000. The amount of benefits paid in the year by the pension scheme was £330,000.

Raven’s actuary estimates the fair value of the pension scheme assets at 30 April 2018
to be £3,248,000 and the present value of the pension scheme obligations at that date to
be £3,457,600.

An annual discount rate of 5% is to be applied to the pension scheme assets and

liabilities.

ICAEW/J18 Page 11 of 17
QUESTION 3
You are an audit senior working for Cromer Bell LLP, a firm of ICAEW Chartered
Accountants. You have been assigned to the audit of Miles Recruitment Ltd (MRL) for the
year ending 31 August 2018. MRL provides recruitment services to the financial services,
transport and technology sectors. It earns revenue by charging business customers a fee for
identifying appropriate employees to fill job vacancies.

MRL is a wholly-owned subsidiary of Milcomba, a listed company incorporated in Elysia.

Cromer Bell’s Elysian office is responsible for the group audit of Milcomba.

You receive a briefing note and instructions from the Cromer Bell audit manager responsible
for the MRL audit:

Briefing note from MRL audit manager

We need to complete our planning for the MRL audit for the year ending 31 August 2018. I
want you to plan substantive audit procedures to test operating expenses.

Last year, we relied wholly on substantive analytical procedures to test all operating
expenses, but that approach was criticised in a recent external cold review of our audit. The
reviewer’s comments stated that some of the expectations developed by the audit team in
their substantive analytical procedures were imprecise. In addition, the reviewer considered
that some of the expenses should have been tested using tests of details. As a result, I would
expect us to use analytical procedures in a more selective and focused way for this year’s
audit.

Although the group audit team in Elysia has performed interim review procedures on the
Milcomba consolidated financial statements for the six months ended 28 February 2018, it
did not require us to perform any interim review procedures locally on MRL.

Planning materiality for MRL has been determined at £50,000, based on 5% of forecast profit
before tax for the year ending 31 August 2018.

MRL’s finance director, Gil Moore, was appointed on 1 March 2018. We know Gil well, as he
was, until February 2018, a senior audit manager with Cromer Bell. Gil was the manager
responsible for the audit of MRL for the year ended 31 August 2017, which we completed in
December 2017.

Gil has provided details of MRL’s operating expenses for the 10 months to 30 June 2018.
I asked the Cromer Bell specialist data analytics team to analyse these. The team has
provided a report (Exhibit 1).

I met with Gil last week and have summarised our discussion in a note for the file (Exhibit 2).

ICAEW/J18 Page 12 of 17
Instructions from MRL audit manager

Please consider all the information I have provided and:

a) Identify and explain the key audit risks for our audit of MRL for the year ending 31 August
2018. Where appropriate, set out and explain any related financial reporting issues,
including relevant calculations;

b) For each of the operating expenses (Exhibit 1) explain whether substantive analytical
procedures and/or tests of detail would be the more appropriate audit approach. Identify
the key substantive audit procedures that we should perform to test each operating
expense; and

c) Explain any potential ethical issues in respect of Gil Moore’s behaviour and summarise
the actions that Cromer Bell should take to address them.
Requirement

Respond to the audit manager’s instructions.

Total: 30 marks

ICAEW/J18 Page 13 of 17
Exhibit 1: Report from Cromer Bell specialist data analytics team on MRL’s operating
expenses for the 10 months ended 30 June 2018

MRL’s financial statements for the 10 months ended 30 June 2018 includes total operating
expenses as shown below.

10 months 10 months
to 30 June to 30 June
2018 2017
£’000 £’000
Wages and salaries for administrative staff 2,324 2,159

Other staff expenses 315 287

Rent 595 850
Insurance, electricity, gas and other utilities 725 678
Depreciation of office equipment and leasehold offices (120) 200
Movement in allowance for receivables 80 200
Legal and professional fees 210 50
Movement in provision for claims and other legal matters 40 180
Start-up costs for MP Ltd 230 -
Other administrative expenses 76 63
Total operating expenses 4,475 4,667

MRL’s operating expenses have fluctuated over the 10 months to 30 June 2018, as shown in
the chart below:

Operating expenses by month

800

700

600
Operating expenses £'000

500

400

300

200

100

0
Sep Oct Nov Dec Jan Feb Mar Apr May Jun
Month

ICAEW/J18 Page 14 of 17
Data analytics − potentially unusual or one-off items
Our analysis of the underlying data on operating expenses identified the following potentially
unusual or one-off items:

 There are no monthly rent costs from April 2018 onwards.

 In February 2018, a credit entry of £100,000 was made to reduce the movement in the
allowance for receivables.
 In February 2018, a credit entry of £300,000 was made to reduce the depreciation charge
for leasehold improvements.
 December 2017 expenses include a one-off legal fee of £150,000.
 October 2017 expenses include start-up costs of £230,000.
 Movements in the provisions for claims and other legal matters were:
- a credit entry of £40,000 in February 2018
- a debit entry of £80,000 in March 2018.

Analysis of journal entries

You also asked us to identify any unusual journal entries posted to operating expenses. Our
analysis identified two entries posted by Gil Moore, the MRL finance director:

1) In April 2018:

DR Wages and salaries for administrative staff £50,000

CR Accruals £50,000

Half-year bonus for MRL executive team.

2) In May 2018:

DR Other staff expenses £9,000

CR Cash £9,000

New tablet computers for finance team.

ICAEW/J18 Page 15 of 17
Exhibit 2: File note summarising meeting last week with Gil Moore, MRL finance
director – prepared by Cromer Bell audit manager

Key points noted from my discussion with Gil were as follows.

Group performance

The Milcomba group is facing challenges in the financial year ending 31 August 2018, with
falling profits at several international subsidiaries. While MRL’s trading is reasonably good, a
weakening of the £ has meant that MRL’s profit is lower than in the year ending 31 August
2017 when translated into Elysian $, the presentation currency for the group.

Strong financial management and cost control at group level ensured that the group’s
reported results for the six months ended 28 February 2018 were in line with market
expectations. The Milcomba board has made it clear that it expects MRL to deliver profit
above budget for the 6 months to 31 August 2018.

Review of receivables

The first monthly report provided for Gil, after his appointment, was for February 2018 and
he spent the limited time available reviewing provisions and other judgemental areas. A
significant adjustment he made was to reduce the bad debt allowance for receivables by
£100,000. His decision to do this was based on a review of receivables written off as
irrecoverable in the six months ended 28 February 2018, which showed that write-offs were
lower than anticipated.

Revenue

MRL’s revenue for the 10 months ended 30 June 2018 was in line with budget but its
customer base has changed. MRL recruited fewer candidates for its traditional financial
services customers but attracted new customers in the transport and technology sectors.
This resulted in a greater number of candidates but a lower average recruitment fee per job
vacancy filled.

The terms of business for the new customers are similar to those for existing customers.
Recruitment fees are invoiced when a job applicant identified by MRL accepts employment
with an MRL customer. The customer can claim a refund of 75% of the recruitment fee if the
new employee leaves within 1 month of starting employment and a refund of 50% of the fee
if the employee leaves within 3 months.

Start-up of MP Ltd
Recruiting a large number of candidates has put pressure on MRL’s staff resources. To
relieve some of this pressure, MRL has entered into an arrangement with another
recruitment company, Peerless Ltd. In October 2017, MRL and Peerless each invested initial
capital of £230,000 in a newly-formed company, MP Ltd. The shares of MP are held equally
by MRL and Peerless. MRL’s investment is included in operating expenses as start-up costs.

MP was created to provide administration and research services to MRL and Peerless. It
focuses on lower-salaried positions and utilises advanced technology to obtain efficiencies.
MP recharges its costs, plus a margin of 5%, to Peerless and MRL in proportion to the time
its staff spend working for each investor.

ICAEW/J18 Page 16 of 17
MP did not start trading until May 2018, because of delays in the installation of its computer
system. This computer system and other non-current assets cost £400,000 in total. MP has
30 staff and is performing well, relieving the pressure on MRL’s consultants and allowing
them to focus on recruitment of higher-salaried positions. MP is expected to make a profit of
£50,000 in the period ending 31 August 2018.

Leasehold premises and depreciation

The lease for MRL’s premises was originally for 10 years starting on 1 April 2013. At that
date, the remaining useful life of the building was 45 years. In March 2018, the terms of the
lease were renegotiated and it was extended for a further 5 years, so that it now expires on
31 March 2028. In return for extending the lease, MRL received a rent-free period of 6
months from 1 April 2018 and a reduced rent of £960,000 pa for the remaining term of the
lease. At the start of the original lease, MRL spent £1.8 million on leasehold improvements
which were being depreciated over 10 years. As the lease has now been extended, Gil
revised the depreciation calculation, such that the total cost is now spread over the total
lease term of 15 years.

Cold review
Gil enquired about our planned audit approach for operating expenses. He had heard about
the comments made by the external reviewer who conducted the cold review of the MRL
audit file for the year ended 31 August 2017. Gil hoped that we would not pay too much
attention to these comments as they were, in his view, not valid.

ICAEW/J18 Page 17 of 17