- 30 Marks
AAA – Nov 2023 – L3 – SA – Q1 – Audit of Complex Entities
Prepare the consolidated statement of financial position for Sports PLC Group as of September 30, 2020, with adjustments for subsidiaries, non-controlling interests, goodwill, and investments.
Question
BP Fashion Limited is trading and expanding in the fashion industry. Over the years, the company has been audited by LMP Professional Services. The company is considering going to the stock market to raise funds through an increase in its issued share capital for the purpose of expansion into new markets.
The summarised two-year financial statements and the nine (9) months accounts of the company are given below:
BP Fashion Limited
Summarised Income Statement For the Years Ended December 31,
| 2019 | 2020 | 2021 (9 months) | |
|---|---|---|---|
| Revenue | ₦2,952m | ₦3,510m | ₦4,139m |
| Cost of sales | (₦1,402m) | (₦1,671m) | (₦1,987m) |
| Gross profit | ₦1,550m | ₦1,839m | ₦2,152m |
| Other income | ₦15m | ₦21m | ₦25m |
| Operating costs: | |||
| – Employee costs | (₦390m) | (₦460m) | (₦538m) |
| – Occupancy costs | (₦262m) | (₦312m) | (₦373m) |
| – Other operating costs | (₦278m) | (₦326m) | (₦389m) |
| Earnings before interests, taxes, depreciation and amortisation (EBITDA) | ₦635m | ₦762m | ₦877m |
Summarised Statement of Financial Position
| 2019 | 2020 | 2021 (9 months) | |
|---|---|---|---|
| Non-current assets | |||
| Property, plant and equipment | ₦375m | ₦470m | ₦470m |
| Deferred tax | ₦30m | ₦35m | ₦40m |
| Total non-current assets (A) | ₦405m | ₦505m | ₦510m |
| Current assets | |||
| Inventories | ₦425m | ₦525m | ₦655m |
| Trade and other receivables | ₦125m | ₦150m | ₦175m |
| Cash and equivalents | ₦425m | ₦545m | ₦780m |
| Total current assets (B) | ₦975m | ₦1,220m | ₦1,610m |
| Total assets (A + B) | ₦1,380m | ₦1,725m | ₦2,120m |
Equity and Liabilities
| 2019 | 2020 | 2021 (9 months) | |
|---|---|---|---|
| Share capital and reserves | ₦885m | ₦1,135m | ₦1,430m |
| Long-term loans | ₦125m | ₦125m | ₦125m |
| Employees’ benefits | ₦20m | ₦35m | ₦50m |
| Deferred tax | ₦55m | ₦65m | ₦70m |
| Non-current liabilities | ₦200m | ₦225m | ₦245m |
| Trade and other payables | ₦270m | ₦335m | ₦410m |
| Tax payable | ₦25m | ₦30m | ₦35m |
| Current liabilities | ₦295m | ₦365m | ₦445m |
| Total equity and liabilities | ₦1,380m | ₦1,725m | ₦2,120m |
It has become necessary, and as part of the NGX Exchange Limited‟s requirements,
to appoint another firm of accountants to review the financial statements for some
specified periods. Your firm Stratcom Partners has been approached to carry out the
necessary review.
Required:
a. Highlight the features of professional engagements as contained in ISRE 2410:
International Standard on Review Engagement and ISRS 4410 (revised):
International standard on Related Services. (8 Marks)
b. Detail out the procedures to be carried out in the review of interim financial
information. (6 Marks)
c. In view of the changes in inventories in the financial statements given above,
between the last two periods, provide the substantive procedures that would
be carried out to establish a reliable evidence of the change. (6 Marks)
d. Prepare the outline of the reporting requirements of a compilation engagement.
(10 Marks)
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