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Audit Risk Analysis of Scapa Group PLC - Case Study Example

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This work called "Audit Risk Analysis of Scapa Group PLC." describes the financial system of this company. The author outlines consolidation issues with respect to Webtec, possible risks, subjective nature of estimates, the role of cash and bank balances, detailed audit procedures…
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Audit Risk Analysis of Scapa Group PLC
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Download file to see previous pages This was mainly because of the tough competition by the French automobile products. Scapa Group PLC already resorts to hedging for covering the commodity price fluctuation risk. There is a risk that due to competition, the value of the products declines. Moreover, due to poor economic conditions, it is possible that many of the customers in European markets are not able to pay their debts (EU Business, 2014). The trade receivables in Europe constitute around 50% of the total receivables. The provisions for the bad debts should be considered in detail. There is a risk of debts not being recovered.
Scapa Group PLC has gone through major changes in group structure during this year. There has been a disposal of the Georgia subsidiary and the acquisition of Webtec has been completed during this year. There are specific issues related to Webtec. SAP has been implemented at Webtec (Scapa Group PLC, 2013c). It is a matter of risk. Since the implementation of new ERP involves the migration of data. There is a high risk that the opening balances are not transferred correctly. Such data migration requires a huge amount of care. The values of Webtec that are consolidated have to be checked thoroughly with respect to Opening balances. Moreover, there is a risk that the setup of the new account balances in SAP is not done appropriately as compared to the previous system. A single typographical error of depreciation rate from 5% to 6% can make a significant error in depreciation calculation. Moreover, the integration of SAP at a subsidiary with the system at Scapa Group PLC is also a matter of concern. Reckless integration can lead to Scapa Group PLC results being disturbed.
There is a risk related to the classification in the financial statements. The company is having both types of leases. There is a risk that Scapa Group PLC is misclassifying its assets from the finance lease to an operating lease. This will help it to achieve higher costs of lease rentals in the Income Statement, and therefore, the tax will be saved.
Moreover, this year, there have been specific issues related to IFRS 5. The company has classified its subsidiary’s assets and liabilities as being held for sale. There is a risk that the items are classified before the conditions of IFRS 5 are met. There is also risk attached with respect to the valuation and completeness of the items that are being re-classified. It should be assured that all the assets and liabilities relating to the subsidiary are re-classified at accurate amounts (Deloitte, 2014b). ...Download file to see next pagesRead More
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