CORPORATE REPORTING

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 of 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 working on a consulting engagement with Lumina Holdings Limited (Lumina) where you are
assisting in preparation of Consolidated Financial Statements. Lumina has a subsidiary named Vista
Limited and an associate Arcadia Limited (Arcadia). You have received the following audited separate
financial statements of each of the entities:
Statement of Financial Position
As of 30 June 2024
Lumina Vista Arcadia
Assets
Non-current assets
Property, plant and equipment 300,243,199 42,278,420 4,956,243
Right of use assets 11,482,645 529,148 553,102
Investments 50,540,627 1,313,802 -
362,266,471 44,121,370 5,509,345
Current assets
Inventories 145,173,219 21,197,393 1,935,643
Inter-company receivables 50,518,204 20,742,592 -
Trade and other receivables 568,791,834 26,875,982 1,347,451
Advances, deposits and prepayments 59,885,975 3,394,220 3,398,480
Cash and cash equivalents 48,671,355 9,983,786 2,648,951
873,040,587 82,193,973 9,330,525

Total assets 1,235,307,058 126,315,343 14,839,870

Equity
Share capital (Face value of 10 Tk.) 100,000,000 30,000,000 10,000,000
Retained earnings 314,395,609 24,339,622 2,940,467
Total equity 414,395,609 54,339,622 12,940,467
Liabilities
Non-current liabilities
Employee benefits 25,974,211 1,055,500 346,323
Lease liability 8,140,246 346,360 502,467
Deferred tax liabilities 5,006,951 3,174,689
Long term bank loans 28,215,686 -
67,337,094 4,576,549 848,790
Current liabilities
Lease liability- current portion 3,117,070 214,213 214,145
Bank overdrafts 100,998,879 327,171
Short term borrowing 453,920,700 12,938,858 -
Trade and other payables 174,795,114 3,400,726 836,468
Inter-company payables 20,742,592 50,518,204 -
753,574,355 67,399,172 1,050,613

Total liabilities 820,911,449 71,975,721 1,899,403

Total equity and liabilities 1,235,307,058 126,315,343 14,839,870

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 Statement of Profit or Loss and Other Comprehensive Income
For the year ended 30 June 2024
Lumina Vista Arcadia

Revenue 674,853,449 82,225,297 8,998,046

Cost of sales (420,966,247) (58,463,160) (5,612,883)
Gross profit 253,887,202 23,762,137 3,385,163
Other income 18,750,882 1,238,609 250,012
Admin, selling and distribution expenses (187,225,197) (14,110,542) (2,496,336)
Operating profit 85,412,887 10,890,204 1,138,839
Finance costs, net (10,998,847) (3,505,213) (146,651)
Profit before contribution to WPPF 74,414,040 7,384,991 992,188
Contribution to WPPF (3,720,702) (369,250) (49,609)
Profit before tax 70,693,338 7,015,741 942,579
Income tax expenses (17,188,365) (1,800,406) (195,932)
Deferred tax income/(expense) 2,493,462 169,698
Profit after tax 55,998,435 5,385,033 746,647
Other comprehensive income (1,677,213) - -
Total comprehensive income 54,321,222 5,385,033 746,647

From management queries and reading separate financial statements, you have identified following
information that might be useful for consolidation.
• Lumina acquired 80% shares of Vista Limited with BDT 35,000,000 on 01 July 2020 when it had
retained earnings of BDT 8,234,713
• Lumina co-founded Arcadia on 01 July 2021 by investing BDT 2,500,000 and acquired 25% of its
shares in the process. At the time of share acquisition, Arcadia didn’t have any retained earnings.
Lumina’s founder and Chairman Mr. Nazeem also acquired 35% shares of Arcadia in his personal
capacity and serves as its director.
• During the year Vista sold inventory of BDT 1,100,000 to Lumina where it earned 10% margin.
Entire inventory remained unsold at Lumina’s warehouse at the year end.
• Arcadia acquired an asset on 01 July of BDT 2022 with BDT 2,000,000 which it is depreciating at
20% using declining method. Lumina and Vista both follows straight line method for charging
depreciation. The Asset is estimated to have 5 years of useful life.
• Lumina made a payment of BDT 750,000 to Vista at the year-end, but it was not received by Vista.
Vista reported this receivable in trade receivables.
Requirement:
Prepare a Consolidated Statement of Financial Position and a Consolidated Statement of Profit or Loss
and Other Comprehensive Income for Lumina as of 30 June 2024 and for the year ended 30 June 2024. 20

2. You are serving as financial analysist at Diamond Equity Limited (DEL). DEL is currently planning to
acquire 60% shares of Daily Fashion Limited and obtained latest signed financial statements for initial
assessment. You have been assigned to perform an analysis on the following financial statements of
Daily Fashion Limited.
Daily Fashion Limited
Statement of Financial Position
As of 31 December 2023
Unit-1 Unit-2 2023 2022
Assets
Non-current Assets
Property, plant & equipment 25,467,086 348,977,137 374,444,223 404,237,728
Right of Use Assets -Net - 5,642,291 5,642,291 941,060
Loan to Unit - II 122,652,091 - 122,652,091 122,652,091
Investment in FDR 2,121,193 30,182,008 32,303,201 19,651,193
150,240,370 384,801,436 535,041,806 547,482,072
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Current Assets
Inventories 22,045,344 199,498,507 221,543,851 367,505,422
Trade debtors 31,816,547 56,739,412 88,555,959 91,616,363
Other receivables 19,544,974 14,135,178 33,680,151 32,384,569
Advance, deposits &
44,180,289 59,506,070 103,686,359 90,589,749
prepayments
Receivable from Unit-I - 168,924,490 168,924,490 125,082,412
Cash & cash equivalents 4,194,004 42,305,950 46,499,953 25,749,856
121,781,158 541,109,607 662,890,763 732,928,371
Total Assets 272,021,528 925,911,043 1,197,932,569 1,280,410,443
Equity & Liabilities
Shareholder's Equity
Share capital 150,974,330 - 150,974,330 149,974,500
Retained earnings (109,292,410) 244,481,217 135,188,806 128,662,090
41,681,920 244,481,217 286,163,136 278,636,590
Non-Current Liabilities
Loan from Unit-I - 122,652,091 122,652,091 122,652,091
Long Term Loan 10,595,567 83,846,016 94,441,582 64,023,883
10,595,567 206,498,107 217,093,673 186,675,974
Current Liabilities and Provisions
Long term loan - current portion 6,757,883 29,525,746 36,283,629 31,678,805
Short term loan - secured 29,680,542 46,974,499 76,655,041 94,021,108
Lease liability - 5,985,115 5,985,115 1,023,853
Trade payable 11,078,036 321,503,138 332,581,174 493,739,002
Liabilities for expenses 3,303,090 70,943,221 74,246,311 69,552,699
Payable to Unit-II 168,924,490 - 168,924,490 125,082,412
219,744,041 474,931,719 694,675,760 815,097,879
Total Equity & Liability 272,021,528 925,911,043 1,197,932,569 1,280,410,443

Daily Fashion Limited

Statement of Profit or Loss and Other Comprehensive Income
For the year ended on 31 December 2023
Unit-1 Unit-2 2023 2022
Revenue from customers 67,059,353 949,523,288 1,016,582,641 1,190,986,602
Sale to Unit-II - 168,924,490 168,924,490 -
Total Revenue 67,059,353 1,118,447,778 1,185,507,131 1,190,986,602
Cost of revenue from customer (74,686,096) (815,503,323) (890,189,419) (1,062,102,843)
Purchase from Unit-I (168,924,490) - (168,924,490) -
Gross Profit/(Loss) (176,551,233) 302,944,455 126,393,222 128,883,759
Administrative Expenses (4,671,795) (26,485,367) (31,157,161) (34,874,280)
Selling Expenses (610,640) (25,592,434) (26,203,074) (33,700,501)
Operating Profit/(Loss) (181,833,668) 250,866,654 69,032,987 60,308,978
Other Income 140,354 622,524 762,878 531,410
Financial Expenses (3,186,802) (28,510,862) (31,697,663) (19,478,446)
Exchange Gain/(Loss) (999,685) (11,174,693) (12,174,378) (31,470,530)
Profit/(Loss) before WPPF (185,879,801) 211,803,623 25,923,824 9,891,412
Contribution to WPPF - (2,041,864) (2,041,864) (1,304,938)
Profit/(Loss) before Tax (185,879,801) 209,761,759 23,881,960 8,586,474
Tax Expenses (220,670) (6,158,075) (6,378,746) 9,470,780
Profit/(Loss) After Tax (186,100,471) 203,603,684 17,503,214 18,057,254
Other Comprehensive Income - - - -
Total comprehensive income (186,100,471) 203,603,684 17,503,214 18,057,254

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 In the audit report, the auditor of Daily Fashion Limited has included “Emphasis of Matter” paragraph
where they have included the following matters:
• Daily Fashion Limited offers gratuity to its employees as per contractual agreement. However, no
provision has been created for gratuity liability. Company policy is to pay off the gratuity when an
employee leaves the organization and expense the payment. Estimated gratuity liability at the year-
end is BDT 8,970,000. Estimated gratuity expense for the year is BDT 2,170,000 and BDT
1,950,000 for prior year. No employee left during 2022 and 2023.
• BDT 15,000,000 of the investment in FDR was made to Chittagong Bank Limited for a year at 10%
interest. Although the FDR amount is matured, CBL has refused to liquidate the amount due to
shortage of fund. Bank has committed to defer the liquidation in full for 6 months, but no interest
will be paid for these deferred months.
• During June 2022, a machine with written down value of BDT 550,000 broke down which was
beyond repair. Management scrapped the machine, but it was not removed from the asset register.
In 2022, BDT 100,000 was reported as annual depreciation for the asset. The entity corrected the
error by adjusting the opening retained earnings in 2023.
Requirements:
a) Comment of the financial statements whether the financial statements have been prepared
appropriately in accordance with IFRS. Identify any deviation (if exists) and suggest for necessary
recognition, measurement and presentation adjustment. 10
b) Analyse and comment on the overall financial statements of Daily Fashion Limited after necessary
adjustments. 10
3. You are an FCA working as a director in a prominent CA Firm. You have received an email from your partner.
The e-mail is read as below:
Our team is auditing the Country’s largest Steel Company Giant Steel Company (GSC). Mr. Faruk
Ahammed is the CFO of GSC who is an FCA of ICAB. Mr. Faruk has handed over the draft solo and
consolidated financial statements for the year ended 31 December 2024 to our audit team. I am giving
you some key figures from the Financial Statements:
In Million BDT except for EPS
Profit for the year attributable to the shareholders of GSC 1,550
Earnings per share (BDT) 13.5
Equity
Ordinary share capital (BDT 10 per share) 1,200
Share premium 220
Retained earnings 2,200

Our audit in-charge called me yesterday evening and raised his concerns on various issues in the
financial statements which are given in Exhibit-1 attached with this mail. He thinks CFO overstates
profit as CFO’s bonus is directly linked to EPS of the Company.
Requirements:
I want you to review the issues raised by our audit in-charge and do the following:
a) Explain the required IFRS financial reporting treatment of issues (1) to (4) identified in exhibit-1 in
the financial statements for the year ended 31 December 2024, preparing all relevant calculations. 16
b) Discuss the ethical issues arising from the scenario for Mr. Faruk and the steps that we should take
to address them. 5
Exhibit – 1:
(1) On 1 July 2024, GSC acquired 8 million shares of Best Ispat Plc’s (BIP) 10 million (face value 10
taka each) ordinary shares as per below terms:
- Cash of BDT 20 million paid immediately and another cash payment of the same amount after 1 year;
- Issue of 5.2 million shares of GSC (face value of each share is BDT 10) immediately. Market
price of GSC’s share on that day was BDT 13.
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 Mr. Faruk has calculated goodwill on the business combination with BIP as BDT 69.72 million and
has recognised this amount as an intangible asset in the consolidated financial statements. Only cash
consideration that was paid in 2024 was included in the goodwill calculation and the remaining
considerations (deferred payments and share issuance) were not included. Upon query, Mr. Faruk
said that this was because cash was the only part of the consideration that involved a transfer of cash
flows in the current year.
Moreover, Mr. Faruk has used the proportionate method to calculate the NCI of BIP whilst the
accounting policy of GSC approved by the board of directors requires to calculate goodwill and the
non-controlling interest using the fair value method. The fair value of the non-controlling interest
on 1 July 2024 was BDT 42.0 million.
BIP’s financial statements for the year ended 31 December 2024 show profit for the year of BDT
12.7 million and retained earnings of BDT 18.5 million. There is a contingent liability of BIP from
a legal proceeding commenced on 01 July 2024 fair value of which at the date of acquisition is BDT
39 million. CFO made no adjustment for this liability when he calculated goodwill arguing that it
did not form part of BIP’s net assets on 1 July 2024.
The consolidated statement of profit or loss for the year ended 31 December 2024 correctly reflects
the results of BIP. The Company uses 8% as discount rate.
(2) On 1 August 2024, GSC made a one for four bonus issue of ordinary shares. CFO has not accounted
for the bonus issue, although the issue was based on the correct number of ordinary shares. On 31
December 2024 GSC bought back 5.2 million of its own ordinary shares (face value of each is BDT
10) for BDT 15 cash per share. CFO debited the consideration to ordinary share capital.
(3) During the year GSC sold goods totaling BDT 15 million on credit to Salvation Pipes, a company
wholly-owned by Mr. Faruk’s son. At 31 December 2024 there was a trade receivable of BDT 4
million in respect of these sales. No disclosures were made in the individual or consolidated
financial statements of GSC for this transaction. Upon enquiry, CFO said that this was because the
sales were made at an arm’s length price. The managing director was unaware of these sales until
the credit controller asked him to review the year-end allowance for doubtful debts, which includes
BDT 1.5 million in respect of this debt, as Salvation Pipes Ltd is known to be in financial difficulties.
(4) On 1 October 2024 GSC sold a package of products for BDT 10.4 million cash. The package was
made up of equipment and 12 months of support services. The equipment normally sells at BDT 11
million and the support at BDT 2 million. Mr. Faruk recognized revenue of BDT 10.4 million in the
financial statements for the year ended 31 December 2024, on the grounds that the equipment sale
had been made in that year and the provision of support service was part of that sale.
The published financial statements for the year ended 31 December 2023 show that GSC had an EPS of
BDT 12.

4. Gadget Shop Limited (GSL) is a mid-sized technology company specializing in selling consumer gadgets
though its e-commerce site. On 30 April 2024, the company held its 5th AGM and appointed your firm as
statutory auditor of the company for the year ended on 30 June 2024. You have been assigned as engagement
manager and tasked to complete the acceptance procedures. Upon receiving appointment letter, you have
sent request for professional clearance however no response was received. Management of GSL has urged
your partner to complete the audit as early as possible. Your partner has asked you to start the audit
procedures and simultaneously complete the acceptance procedures for efficiency and time management.
Analysis of the business model shows that GSL generates its revenue through its ecommerce site
(gadgetshop.com) which has always been a cornerstone of its business. It doesn’t have any physical
store but sells only through its website. GSL actively advertise and promotes its website to generate
customer footprint in its website. Customers need to open an account at GSL website in order to make
any purchase. GSL offers variable payment options including Credit card payments, bank transfer,
mobile financial services and cash on delivery. Once a customer places order, the ordered item is either
delivered through GSL’s own delivery men or courier services.
During a discussion with the IT department regarding the website architecture and related controls, it
was identified that its website was unavailable during mid-February as the GSL forgot to renew its
website domain. As the web domain was expired, it was available for reselling. Fortunately, GSL was
able to renew the domain before anyone could purchase the website domain address. IT manager has
also informed that website has not yet renewed its SSL (Secure Sockets Layer) certificate which encrypts
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 data sent between a browser and a website. Primary purpose of the SSL is to protect sensitive
information like login credentials, credit card numbers, and personal identification number from being
stolen or viewed by unintended third party.
In an effort to reduce administrative costs, GSL has assigned its IT manager the additional responsibility
of maintaining the accounting software, recording financial transactions in the software and preparing
financial statements based on system balance. The IT manager, though experienced in Website building
and software development, lacks formal training in accounting and financial reporting standards. During
discussions with IT Manager, he admitted uncertainty about applying specific accounting standards and
requested assistance from your audit team.
GSL serves both corporate and individual customers. Where individual customers mostly purchase on cash,
corporate customers require credit period. GSL’s one of the major corporate customers is NeoTech Limited
(NTL) who has been purchasing products from GSL since the beginning. However, its financial condition
has worsened in last two years. During this two years NTL purchased product amounting to BDT 1,500,000
on credit which remains outstanding. On a formal later, NTL informed GSL about its financial crisis and
requested for extended credit period for the outstanding amount considering past relationship and future
business prospects. GSL management has agreed with the proposal and based on that no bad debt allowance
was created. You received confirmation from the NTL, acknowledging the outstanding amount in full.
During the year GSL attempted to increase its revenue by advertising to customers. In order to identify
target market, GSL hired a consulting firm to conduct a market analysis. This analysis played a key role
in designing and developing the advertisements. Upon reviewing the contract, you noted that the
consulting firm is owned by the CEO’s brother. The payment of BDT 300,000 for the market analysis
was capitalized considering that GSL will use this date for designing promotional activities in future
years. The consulting fee is now being amortized over the 5 years period.
Requirements:
a) Identify and discuss any ethical issues involved in GSL’s business operation. Evaluate whether the
appointment of your firm has made in compliance with the law. 4
b) Identifying potential risks arising from GSL’s business environment and operation. 5
c) Preform risk assessment on each of the identified risks to determine existence of significant risks or
fraud risks (if any) and indicate the accounts and assertions being impacted. 5
d) Design general and specific audit procedures your team should perform to address the identified
significant or fraud risks. 5
5. a) You, as the senior partner of your audit firm, have come across below issues during peer review of a
listed client under another partner (for the year 2023). The company follows calendar year (January to
December) as its accounting period. Your firm has been auditing the client for last 2 years and the issues
some-how did not come to audit team’s notice.
Requirements:
Share your views upon review. You should assume that the amounts involved are material in each case.
i) On 1 January 2021, the company entered a legal action defending a claim for supplying faulty
machinery. This year, your firm had sent a legal confirmation to the lawyer, where lawyers
advise that due to lack of proper documentation tri-party contract with company’s customer and
supplier, there is a 40% probability (compared to 5%, in earlier assessment) that the company
might lose the case. The amount of the claim is Tk.500,000,000. No provision was made. 2
ii) The company occasionally faces litigation from retail customers. Such cases involve claim upto
Taka 100,000, on average. Historically, 20% of the cases were settled against the company and
5% are settled outside the court paying 60% of claimed amount. At the end of the year, the
litigation register had 1,000 such litigations. 2
iii) A customized machinery was produced at a cost of Tk.2billion against a customer’s order.
Agreed price for the machine was of Tk.2.5billion. The item was in inventory at the year-end
awaiting delivery instructions. In December 2024, there was a public news that the customer is
facing financial distress and might go bankrupt. The most reasonable course of action for your
client seems to be to make a modification to the unit, costing approximately Tk.300 million
which is expected to make it marketable with other customers at a price of about Tk.1.9billion. 2

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 iv) The company had imported machinery worth USD200 million in June 2023, under deferred LC.
The shipment was released in December 2023 making a partial payment of USD20 million
(exchange rate 1 USD = Taka 110). Rest of the amount will be settled in June 2025. The machine
was sold to a garments manufacturer, who had managed fund for settlement of mentioned down-
payment. The company recognized revenue for the same amount in 2023. Contract price for the
machine was USD230 million. The machine was installed in the premises of the client in March
2024. Currency rate at the end of March 2024 was USD 1= Taka 120.
Rest of the amount has not been recognized yet. The customer agreed to pay the rest of the
money at currency gain loss. Year end USD rate USD 1= Taka 125. 4
v) Mr. Zahid has been appointed as an Independent Director of the company. His wife, Mrs. Payel
has a raw material supply contract with the company since long. Mr. Zahid, who is also a
professional accountant is of the view that since his wife runs business independently, it does
not qualify for related party disclosure. Audit manager is convinced that the company has
effective control over procurement process. 2
b) Your firm was a joint auditor for a commercial bank. The bank has significant amount of bad loans
and is about to collapse.
While you were auditing the bank, you heard about a rumor that advances made by the bank were
made without proper client assessment. However, since your audit area was deposits and property,
plant and equipment, you had relied upon opinion of the other auditor.
A complaint has been launched with Financial Reporting Council alleging collusion with
management of the bank.
Requirement:
Advise appropriate action. 8

---The End---

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