CORPORATE REPORTING

March-April-2021

Time allowed- 3:30 hours

Total marks- 100

[N.B. - The figures in the margin indicate full marks. Questions must be answered in English. Examiner will take account of the
quality of language and the manner in which the answers are presented. Different parts, if any, of the same question must
be answered in one place in order of sequence.]
Marks
1. You are Arif Sazzad currently working as Audit Manager in Saad & Khalid, Chartered Accountants
(S&K). S&K has been engaged in audit of group reporting package of Apparel Bangladesh Company
Limited (ABC Limited). You have been assigned as the engagement manager and you report to Khalid
Mahmud, the engagement partner who is looking after ABC Limited Audit for several years.
You have received following email from the engagement partner Khalid Mahmud:
Hi Arif,
We have been once again appointed to audit the group reporting pack of ABC Limited for the year
ended 30 June 2020. As you are new to this engagement, let me brief you some background
information.
ABC Limited is a Bangladesh subsidiary of Prominent Holdings Limited (Prominent) from United
Kingdom. ABC Limited was incorporated on 01 July 2013 and it is engaged in production of
Sportswear and business wear in Bangladesh and business of ABC has grown since then. In 2017,
ABC acquired 95% shares of Denim First Limited (DFL) to expand its business in Denim items. In
2018, Garments Support Limited (GSL), one of the key suppliers of ABC Limited and DFL, was facing
liquidity crisis. In order to ensure stable supply chain, ABC Limited acquired 25% shares of GSL so
that it can influence the operation of GSL.
Prominent has operation in 20 Countries. For better management and control of operation, Prominent
has policy to prepare a Country Reporting Pack (CRP) in GBP (UK Currency) after consolidating all
the operations of a country.
I have received an email from Mr. Shafiq, CFO of ABC Limited (Exhibit 1) this morning where he
shared the stand-alone financial statements of ABC Limited, DFL and GSL. He also requested
assistance for proper treatment of some reporting issues. I want you to:
Requirements:
a) Draft and email where you set out and explain the appropriate adjustments for the financial
reporting queries raised by Mr. Shafiq (Exhibit 1) for stand-alone financial statements of ABC
Limited for the year ended 30 June 2020. 12
b) Prepare the Consolidated Statement of Financial Position, Consolidated Statement of Profit or Loss
and Other Comprehensive Income for Bangladesh Operation. Consider the effect of adjustments
raised by Mr. Shafiq where applicable. 20
c) Prepare Country Reporting Pack (CRP) after translating the Consolidated financial statements in
GBP (UK Currency). 8
Exhibit 1: Email from Mr. Shafiq, CFO of ABC Limited
From : Mr. Shafiq, CFO of ABC Limited
To : Khalid Mahmud, Partner, Saad & Khalid, Chartered Accountants
Subject : Stand-alone financial statements
Dear Mr. Mahmud
I’m sharing the stand-alone draft financial statements of ABC Limited, Denim First Limited (DFL)
and Garments Support Limited (GSL) (Exhibit 2) for the year ended 30 June 2020. You can
commence your audit works on these financial statements. In addition, I have shared some
information related to consolidation (Exhibit 3 and Exhibit 4).

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We have come across some issues while preparing the financial statements of ABC Limited for
which we will need your assistance. I am not sure how to address these issues. Pleas suggest us
how to address these issues and appropriate entries to incorporate them in the stand-alone financial
statements of ABC Limited.
Issue 1: Interest free loan to employees.
As part of employee retention strategy, ABC approved a scheme on May 2020 that eligible
employee will be allowed to take interest free loans maximum 5 times of their gross salary. Loan
amount will be repayable in 6 to 24 months instalments which will be deducted from employee
salary. On 30 June 2020, one of the senior level employees has taken a loan for BDT 420,000
which will deducted in 24 equal monthly instalments from his salary paid at the end of month. Our
record shows that the incremental borrowing rate for the employee was 11%. Loan paid to the
employee has been recorded as trade debtors.
Issue 2: Revenue recognition
During month of May, ABC received 2 orders from separate customers with option for partial
delivery.
First customer Sparrow Limited ordered 500 pcs of particular styled sports jersey at a total price
of BDT 57,500. Of the ordered quantity, 300 pcs have been delivered by 15th June 2020 when the
customer has requested to supply further 700 pcs of jersey at total of BDT 65,500 after a regular
volume discount of 5% on the new order. Another 300 pcs have been delivered at the year end.
Second customer, Verdin Limited, has ordered 480 pcs of jersey with its brand at a price of BDT
67,200. After delivering the 280 pcs of jersey on 20th June, ABC Limited has identified that they
have produced total of 820 pcs jersey instead of 480 pcs. On management request, Verdin has
agreed to purchase the extra produced jerseys but at a significant lower price. Verdin has demanded
40% discount on the extra jerseys which management has agreed. ABC delivered further 400 pcs
of jerseys to Verdin by the year end.
None of these sales has been recognized at the year-end but the cost of revenue has already been
incorporated in the financial statements of ABC Limited.
Kindly assist us to address these issues and finalize the stand-alone financial statements. We will
be waiting for your response.
Shafiq

Exhibit 2: Stand-alone FS of ABC Limited, DFL and GSL for YE 30 June 2020.
ABC Limited DFL GSL
BDT BDT BDT
Non-current Assets
Investment in DFL 566,589 - -
Investments in GSL 22,605 - -
Marketable Securities - 232,323 -
Property, Plant & Equipment 163,727 99,567 35,562
752,921 331,890 35,562
Current Assets
Inventories 331,838 462,187 15,311
Advance & prepayments 61,236 44,544 3,186
Trade Debtors 505,112 665,650 7,078
Receivables from ABC Limited - 364,122 126,701
Fixed Deposits in bank 18,723 - -
Cash & Cash equivalents 19,074 20,561 17,485
935,983 1,557,064 169,761

Total Assets 1,688,904 1,888,954 205,323

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Equity
Share Capital (BDT 1 per share) 1,000 566,600 11,860
Retained Profits 106,760 628,698 127,125
107,760 1,195,298 138,985
Non-current Liabilities
Gratuity Payables 154,937 83,267 21,314
154,937 83,267 21,314
Current Liabilities
Trade Payables 629,498 439,305 7,140
Liability for bill discounted 39,816 4,696 17,094
Bank Borrowings - 15,569 9,302
Payable to DFL & GSL 490,824 - -
Provision for Income Tax 23,972 16,879 1,102
Accruals & expense provisions 242,097 133,940 10,386
1,426,207 610,389 45,024

Total Liability & equity 1,688,904 1,888,954 205,323

Statement of Profit or Loss & Other Comprehensive Income

For the year ended 30 June 2020

ABC Limited DFL GSL

BDT BDT BDT

Sales to external customers 4,311,681 2,274,382 13,286

Sales to intercompany - - 274,216
Total revenue 4,311,681 2,274,382 287,502
Cost of Revenue (2,889,864) (2,054,364) (165,057)
Gross Profit 1,421,817 220,018 122,445
General & Admin Expenses (1,012,964) (361,605) (83,718)
Other Income 76,860 85,922 11,205
Operating Profit 485,713 (55,665) 49,932
Finance cost (96,492) (72,060) (330)
Profit before tax 389,221 (127,725) 49,602
Tax expenses (21,373) (18,178) (1,036)
Profit for the year 367,848 (145,903) 48,566
Other comprehensive income - - -
Total comprehensive income 367,848 (145,903) 48,566

Exhibit 3: Additional information for consolidation.

 ABC acquired 95% of DFL shares of BDT 1 on 30 June 2017 when DFL had an accumulated
loss of BDT 28,500.
 25% of total shares of GSL were acquired on 01 July 2019.
 During the year GSL sold inventories to ABC Limited worth of BDT 274,216 out of which
inventories of BDT 74,000 remained at ABC Limited’s warehouse. GSE made a margin of
30% on these sales.
 During the year no sales transaction took place between ABC Limited and DFL.
Exhibit 4: Exchange rates of BDT to GBP
01 Jul 2013 : BDT 128.2/ GBP
01 Jul 2019 : BDT 110.1/ GBP
31 Dec 2019 : BDT 107.1/ GBP
30 Jun 2020 : BDT 107.3/ GBP
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2. AXZ Ltd. whose financial year ends on March 31 applies IFRS for SMEs in preparing its financial
statements.
Draft profit of AXZ for the year ended on March 31, 2021 was BDT 168,456,000.
The following are some of the adjustments included in the said draft financial statements.
(i) AXZ measures subsequently its investment property at fair value. Initial recognition of the
investment property was on 1 June 2016 at a cost of BDT 600 million. The fair value of the
property reflected in the financial statements for the year ended 31 March 2019 was BDT 675
million. AXZ noticed that the fair value of its investment property cannot be measured reliably
without undue cost and effort as at 31 March 2020 and 31 March 2021. Therefore, the company
did the following adjustments in the financial statements.
- Acquisition cost of the investment property was considered as the carrying value as at 31
March 2020.
- Depreciation recorded for the current year was calculated based on the straight line method
using its remaining useful life of 10 years.
(ii) AXZ received BDT 150 million as a government grant to carry out work related to Phase 1 of a
special water project in a rural area. Based on the terms attached to the said grant, AXZ is required
to complete Phase 1 on or before 31 March 2021. If AXZ fails to meet the said requirement, the
government will impose a fine, which will be deducted from the amount to be given for Phase 2.
As at 31 March 2021, AXZ was able to complete only 80% of the project work. AXZ recognised
BDT 120 million (80% of BDT 150 million) as revenue for the year and reflected the balance
BDT 30 million as a liability.
Requirements:
a) Recommend the management on the required adjustments to be made in accordance with IFRS for
SMEs. 8
b) Calculate the revised net profit for the year ended 31 March 2021 incorporating any adjustments
resulting from the application of IFRS for SMEs. 5
3. Shuvo Das & Co. Chartered Accountants is auditor of Bright Energy Limited which is engaged in
trading of generators. You are assigned as audit manager for the year ending 31 March 2021 and
currently performing planning & risk assessment procedures. You have received following draft
financial statements from the management.
Statement of Financial Position
2021 2020
ASSETS BDT BDT
Non-current assets
Property, plant and equipment 1,802,757 1,407,786
Deferred tax assets 73,120 91,493
Intangible assets 104,477 70,969
1,980,354 1,570,248
Current assets
Advances, deposits and pre-payments 7,142,745 3,884,765
Inventories 15,852,938 14,102,157
Trade and other receivables 1,201,720 140,985
Cash and cash equivalents 5,812,482 2,533,409
30,009,885 20,661,316
Total assets 31,990,239 22,231,564

EQUITY AND LIABILITIES

Equity
Share capital 16,582,000 15,128,000
Retained earnings 2,234,060 482,563
18,816,060 15,610,563
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 Current liabilities
Trade payables 8,886,059 3,782,861
Provisions and other liabilities 4,288,120 2,838,140
13,174,179 6,621,001

Total equity and liabilities 31,990,239 22,231,564

Statement of Profit or Loss and Other Comprehensive Income

2021 2020
Revenue 27,762,823 25,039,760
Cost of sales (20,335,747) (19,222,492)
Gross profit 7,427,076 5,817,268
Operating expenses (3,215,021) (3,452,654)
Profit from operation 4,212,055 2,364,614
Finance income 638,700 (162,903)
Profit before tax 4,850,755 2,201,711
Income tax expense (1,645,091) (747,544)
Net profit/(loss) after tax 3,205,664 1,454,167
Other comprehensive income/(expense) - -
Total comprehensive income for the year 3,205,664 1,454,167
Requirement:
Analyse and comment on the financial statements of Bright Energy Limited. 10
4. a) Ganga Limited is a listed company and prepares interim financial statements. On its interim
financial statements for the half year ended, it identified that there are events and conditions present
which requires to impair its goodwill arising from purchase of acquisition and accordingly an
impairment loss was recognized. However, by the of year end, those events and conditions has
reversed. As those conditions are not present at the year end, Ganga Limited has reversed the
impairment loss in its financial statements. You are manager of the audit of Ganga Limited’s
financial statements for the year end.
Requirements:
i) Discuss about the events and conditions leading to impairment of assets. 3
ii) Comment on reversal of impairment loss at the year end. 3
iii) What would be your audit responses related to impairment of goodwill? 3
b) Chitra Garments Limited is engaged in manufacturing and export of Garments products. It’s financial
statements for the year ended 31 December 2020 is currently being audited by its auditor. Ever since
COVID-19 outbreak, Chitra has experienced with significant decline in the sale revenue. Customers
has instructed Chitra to hold the manufactured goods until further notice. As a result, Chitra reported
Significant number of finished inventories at the financial statements. According to the sales
agreement, Chitra is not able to sell these inventories locally or the third parties. Chitra has not kept
any allowance for the unsold inventories However, subsequent to year end and before the audit report
is issued, Chitra has come to know that its customer has become bankrupt.
Requirements:
i) Discuss the procedures to be performed to check the subsequent events. 4
ii) Discuss whether any adjustments are required for subsequent events. 2
c) You firm is currently auding Halda Limited where you are assigned as engagement manager.
During the audit you have noted that significant amount of inventory has been written off. Upon
inquiry, management informed you that these inventories are non-existent. Management informed
you that their store in-charge sold off inventories without management awareness. Store manager
use to increase the number of inventories to be delivered in delivery challan to bring the inventories
out warehouse. Then the extra inventory would be sold off for his personal benefit. Management
analysis shows that store in-charge was involved in fraudulent activities for last 3 years. Your
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 review of purchase and sales process shows that store in-charge was solely responsible for
recording goods receipts and issuing delivery challans.
Requirements:
i) What would be your audit procedures related to identified fraud? 3
ii) Suggest appropriate controls to address the fraud risk. 2
5. You are Sinthia Ahmed, a qualified Chartered Accountant, working in a reputed CA firm in the
position of Audit Director. You are currently reviewing the audit of Active Products Limited (APL), a
manufacturer of industrial equipment and machineries, for the year ended March 31, 2021. The audit
work is almost done and you review the audit files to draft a report to those charged with governance.
The statement of financial position of APL as at 31 March 2021 shows total assets of BDT 12,090
million (31 March 2020 – BDT 10,230 million).
From the audit files you have found following points that may be relevant for your intended purpose:
Farjana , a last level articled student, worked on property, plant and equipment of APL and she wrote
in the working paper that controls over capital expenditure transactions had deteriorated during the
year from the Company’s regular practice. Authorisation had not been granted for the purchase of
office equipment with a cost of BDT 34.875 million. She also wrote that no material errors in the
financial statements were revealed by audit procedures performed on property, plant and equipment.
Ali Ashraf, assistant manager of the firm works as audit senior of APL audit, worked on intangible
assets and wrote in working paper that an internally generated brand name has been included in the
statement of financial position at a fair value of 1,550 million. Working paper showed that enquiry was
made to CFO who responded that BDT 1,550 million represents the present value of future cash flows
estimated to be generated by the brand name. Ali Ashraf commented that this treatment appears to be
in breach of IAS 38 Intangible Assets, and that the management refuses to derecognize the asset even
though they have been shown the relevant section of IAS 38.
From the working file of inventories, it is seen that problems were experienced in the audit of
inventories. Due to a misunderstanding by the internal auditors of APL, the external audit team did not
receive a copy of inventory counting procedures prior to attending the count. This caused a delay at
the beginning of the inventory count, when the audit team had to quickly familiarize themselves with
the procedures. In addition, on the final audit, when the audit senior requested documentation to
support the final inventory valuation, it took two weeks for the information to be received because the
accountant who had prepared the schedules had mislaid them.
Requirement:
Draft the points that will be brought attention to those charged with governance and explain the reason
for their inclusion and consequences of each points. 12
6. You have recently joined Abul Hasanat & Co (AHC), Chartered Accountants as audit manager and
currently been assigned to two the audit client. Following issues has arisen in your audit clients.
1. Comfort Real Estates and Design Limited (CREAD).
CREAD is involved in providing architectural design solutions and constructing real states.
AHC has no experience of auditing a real estate company. Mr. Hasanat, proprietor of the firm,
believes that auditing a real estate company will develop firm’s capabilities and portfolio of
auditing real estate sector. In order to penetrate in this sector, AHC has quoted a lower-fees to
CREAD which rewarded this audit engagement. Audit team is facing difficulties in performing
audit procedures as none of them have adequate knowledge the business model and operations
of real estate business.
2. Anika Textiles Limited (ATL)
ATL is an audit client of AHC for several years. Audit process was always smooth. Current
year audit team consists of members who was also part of previous year audits. As your first
year of involvement, you had a meeting with various department heads of ATL including board
of directors. At time of discussion with finance manager, you came to know that one of your
team members helped ATL in preparation of annual financial statements. Your partner and
other team members were not aware of this information.
Requirement:
Identify the ethical issues in each case and suggest appropriate responses. 5
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