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. Your firm is currently engaged with Signature Footwork Limited (Signature) to assist in preparing
consolidated financial statements for the year ended 31 December 2023 and you have been assigned
for the engagement. You have collected the financial statements of Signature and its subsidiaries
(Platinum Shoes Limited and Prestige Footwear Limited) (Exhibit-1). You also obtained further
relevant information (Exhibit-2) from management and audit reports. It is assumed that revenue and
expenses are accrued evenly throughout the year.

Exhibit-1
Statement of Financial Position
As at 31 December 2023
Signature Platinum Prestige
Assets BDT BDT BDT
Non-current assets
Property, plant and equipment 448,559,430 155,997,260 68,032,820
Right of use assets 173,430,849 - -
Investment 320,000,000 - -
941,990,279 155,997,260 68,032,820
Current assets
Inventories 125,131,070 127,963,703 930,213
Trade and other receivables 459,970,924 121,146,461 3,592,278
Short term investments 9,644,767 55,882,270 1,225,000
Advance, deposits & prepayments 4,882,824 58,713,716 3,346,831
Cash and cash equivalents 341,170,862 4,123,336 86,719,846
940,800,447 367,829,486 95,814,168

Total assets 1,882,790,726 523,826,746 163,846,988

Equity and liabilities

Equity
Share capital (face value @ BDT 10) 127,600,000 284,400,000 107,500,000
Retained earnings 363,616,736 129,723,913 13,009,149
491,216,736 414,123,913 120,509,149
Non-current liabilities
Deferred tax liabilities 5,176,962 10,667,007 5,702,013
Long term loan - 15,814,423 -
Employee benefits 80,257,553 3,168,939 75,377
Lease liabilities 152,605,069 - -
238,039,584 29,650,369 5,777,390
Current liabilities
Lease liabilities 17,601,047 - -
Trade and other payables 1,034,412,930 32,609,195 29,539,425
Accrual for expenses 41,910,312 35,668,718 1,361,629
Current tax liabilities 59,610,117 11,774,551 6,659,395
1,153,534,406 80,052,464 37,560,449

Total equity and liabilities 1,882,790,726 523,826,746 163,846,988

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 Statement of profit or loss and other comprehensive income
For the year ended 31 December 2023
Signature Platinum Prestige
BDT BDT BDT
Revenue 786,293,042 285,876,148 3,791,243
Cost of goods sold (528,237,730) (241,311,618) (1,532,483)
Gross profit 258,055,312 44,564,530 2,258,760
Selling and distribution expenses (50,257,519) (10,297,796) (42,585)
Administrative expenses (64,392,797) (5,148,898) (1,083,082)
Profit from operation 143,404,996 29,117,836 1,133,093
Other income 16,575,979 5,038,382 -
Finance cost (14,794,432) (407,080) -
Workers’ profit participation fund (6,913,645) - (53,957)
Profit before tax 138,272,898 33,749,138 1,079,136
Income tax expense (21,109,860) (3,769,129) (244,132)
Profit after tax 117,163,038 29,980,009 835,004
Other comprehensive income - - -
Total comprehensive income 117,163,038 29,980,009 835,004
Exhibit-2
• Prestige Footwear Limited was incorporated in 2012 as joint venture between Signature Footwork
Limited and King Limited. Signature owned 51% shares of Prestige Footwear Limited which was
acquired for BDT 54,825,000. On 30 June 2023, Signature sold 26% shares of Prestige at BDT
40,000,000 and kept remaining 25% shares. Sales transaction and related gain and loss has already
been accounted for in Signature’s books of accounts.
• Platinum Shoes Limited is a publicly listed company trading its shares in Dhaka & Chittagong Stock
Exchanges. On 01 April 2022, Signature acquired 15% shares of Platinum Shoes Limited from
secondary market at BDT 12 per shares. At the time of acquiring the shares, Signature has retained
earnings of BDT 79,795,123. At the beginning of the year Signature acquired further 25% shares of
Platinum at BDT 18 per share. On 01 July 2023 signature acquired further 15% shares of platinum
when market price was BDT 22 per share.
• Notes to Platinum’s audited financial statements show Trade & other receivable includes a
contingent asset of BDT 25,000,000 against insurance claim from Advance Insurance Limited. One
of Platinum’s warehouses caught on fire and suffered a loss equivalent to claim amount. Platinum
raised compensation claim to insurer. However, insurer refused to settle the claim as Platinum did
not maintain sufficient fire safety measures at the warehouse as per insurance agreement. Platinum
recognized the claim as contingent asset by adjusting the inventories.
• At the year-end Signature reported a receivable from Platinum for BDT 1,200,000 from sales of
inventories. Platinum sold these inventories on 01 November 2023 and earned a margin of 10%. At
the year-end, 50% of these inventories remain unsold in Platinum inventory.
• Platinum have not accounted for contribution to workers profit participation fund (WPPF). As per
the law, Platinum is required to contribute 5% of profit before WPPF to workers profit participation
fund within 9 months from the year end.
Requirements:
a) Determine the gain or loss from disposal of Signature’s interest in Prestige. 4
b) i) Prepare a consolidated statement of financial position and Consolidated Statement of profit or
loss for the year ended 31 December 2023 after giving effect the required adjustments. 12
ii) Submit all working notes for the adjustments. 8
2. Violette Industries Limited (Violette) is looking for investment to finance one of the investment
projects. It is planning to raise finance either by borrowing from bank or by issuing new equity shares.
Modern Capital Limited (MCL), where you work, is currently considering investing in Violette and
received the following draft financial statements from Violette management. MCL’s Chief Financial
Officer has forwarded them to you for understanding Violette’s business process and analysing its
financial statements. Furthermore, you had several meetings with Violette accountant to understand the
business better and identified the following information:
▪ Advance deposits and prepayment in both 2023 and 2022 include a security deposit of BDT
20,000,000 paid for Titas Gas Transmission and Distribution Company. The advance will be
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 refunded only when Titas Gas connection in factory is closed. Violette does not intend to cancel
the gas connection in next few years.
▪ Long term loan includes its current portion of BDT 122,926,286 in 2023 and BDT 121,946,210 in 2022.
Violette has a very good employee turnover ratio. It doesn’t expect any payment for gratuity in next 12
month. There was no gratuity payment in the 2023.

Violette Industries Limited

As at 30 June 2023

2023 2022
Assets BDT BDT

Non-current assets
Property, Plant & Equipment 546,564,717 527,128,662
Intangible assets 4,085,150 1,304,197
Capital work-in-progress 168,180,033 136,094,851
Investments 412,611,738 448,075,217
Non-current advance payment 58,666,667 44,000,000
1,190,108,305 1,156,602,927
Current assets
Inventories 364,176,219 335,230,300
Trade & other receivables 25,466,331 52,604,889
Advance, deposits & prepayments 184,340,264 179,926,183
Cash & cash equivalents 113,257,312 79,267,156
687,240,126 647,028,528

Total Assets 1,877,348,431 1,803,631,455

Equity & Liabilities

Shareholders' Equity
Share Capital 266,585,181 266,585,181
Retained earnings 669,580,795 462,082,512
936,165,976 728,667,693
Non-current liabilities
Long term loan 358,228,088 458,613,133
lease liabilities 2,929,697 -
Deferred tax liabilities 23,245,092 22,863,787
384,402,877 481,476,920
Current liabilities
Short term loan & overdraft 325,954,534 300,869,188
Lease liabilities- current portion 1,454,611 1,620,952
Trade payable 71,720,878 128,493,273
Liabilities for expenses 23,490,979 25,870,719
Contract liabilities 41,049,535 74,100,278
Tax payable 69,903,254 49,164,244
Gratuity payable 23,205,787 13,368,188
556,779,578 593,486,842

Total Liabilities 941,182,455 1,074,963,762

Total equity & liabilities 1,877,348,431 1,803,631,455

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 Violette Industries Limited
For the year ended 30 June 2023
2023 2022
BDT BDT
Revenue 3,438,033,017 2,858,509,030
Cost of sales (2,621,074,693) (2,202,460,397)
Gross profit 816,958,324 656,048,633
Administrative expenses (56,737,713) (56,968,612)
Selling expenses (466,104,511) (391,996,033)
Operating profit 294,116,100 207,083,988
Finance cost (22,292,861) (17,001,010)
Other income 34,122,078 34,545,301
Profit before WPPF 305,945,317 224,628,279
Contribution to WPPF (14,568,825) (10,696,585)
Profit before tax 291,376,492 213,931,694
Current tax expenses (83,496,904) (54,146,310)
Deferred tax expenses (381,305) 901,717
Profit after tax 207,498,283 160,687,101
Other comprehensive income - -
Total comprehensive income 207,498,283 160,687,101
Requirements:
a) i) Calculate the revised financials after making the necessary adjustments to be made. 2
ii) Analyse the financial statements of Violette after adjustments. Comment on Violette’s financial
position and performance in terms of Liquidity, Solvency, and Profitability. 9
b) i) Based on your analysis, recommend MCL management whether it can invest in Violette. 2
ii) Mention any limitation of your analysis which MCL should consider. 2
3. a) You recently joined as finance manager at Atlas Electronics Limited which is a consumer electronics
company and has faced a challenging year due to increased competition. Atlas has a year end of 31
December 2023 and the unaudited draft financial statements report an operating loss.
The finance director, Nishat Karim has asked you to look at the following reporting matters which
need to be finalized before the start of the audit in the last week of July 2024.
Restructuring
Atlas has announced two major restructuring plans. The first plan is to reduce its capacity by the
closure of one of its plants, which have already been identified in December 2023. This will lead
to the redundancy of 20 employees, who have all individually been selected and communicated
with on 20 December 2023. The costs of this plan are BDT 3 million in redundancy costs, BDT 2
million in retraining costs and BDT 500,000 in lease termination costs. The board expect that this
restructuring plan will be completed by the end of February 2024.
The second plan is to re-organise the finance department and information technology (IT)
department over a one-year period but this will not be implemented for two years. The plan results
in 20% of finance staff losing their jobs during the restructuring. The costs of this plan are BDT
2.5 million in redundancy costs, BDT 3 million in retraining costs and BDT 2 million in equipment
lease termination costs.
No entries have been made in the financial statements for the above two plans.
Share based payments
On 1 January 2022, Atlas made an award of 10,000 share options to each of its seven directors. The
condition attached to the award is that the directors must remain employed by Atlas for three years.
The fair value of each option at the grant date was BDT 50 and the fair value of each option at 31
December 2023 was BDT 55.
At 31 December 2022, it was estimated that three directors would leave before the end of years
vesting period. Due to an economic downturn the estimate of directors who were going to leave
was revised to one director at 31 December 2023. The expense for the year as regards the share
options had not yet been included in profit or loss for the current year 2023 and no directors had
left by 31 December 2023.
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 Preference shares
On 1 January 2023, Atlas received BDT 20 million cash from a private equity fund in exchange for
preference shares from Atlas which provides cumulative dividends of 7% per annum. These
preference shares can either be converted into a fixed number of ordinary shares in two years’ time,
or redeemed at par on the same date, at the choice of the holder. The finance director asked you to
explore whether the preference shares can be classified as equity because the conversion is into a
fixed number of ordinary shares on a fixed date (“fixed for fixed”) and conversion is certain (given
the current market value of the ordinary shares).
Deferred tax asset
Atlas includes a deferred tax asset in its statement of financial position, based on losses incurred in
the current and the previous two years. The finance director has asked you to consider whether the
deferred tax asset can be recognized in full. He has suggested to consider the basis that Atlas will
return to profitability once its funding issues are resolved and the economic downturn is over.
Requirement:
Write a memo to the finance director providing appropriate accounting treatment along with
calculations where appropriate which Atlas should adopt for all issues identified.
i) Restructuring 5
ii) Share based payments 5
iii) Preference shares 3
iv) Deferred tax asset 3
b) Digonta Entertainments Limited
You are manager for the audit of Digonta Entertainments Limited (commonly known as Digonta)
for the year ended 31 March 2024. There was a plan to have an audit close out meetings next week.
Digonta is famous for event managements and catering services and does have both retail customers
and corporate customers.
Your firm has been auditing Digonta for four years. You have received an e-mail below from audit
senior manager:
“There is still couple of few audit and reporting matters to be resolved before we go for an audit
close out meeting with CFO next week. (Exhibit 1) and (Exhibit 2). Audit planning materiality is
BDT 1.8 million based on Digonta’s profit before tax of BDT 30 millions.”
Exhibit 1: Matters of concern – prepared by audit senior manager.
From my review of the audit working papers, I identified the following matters where I have
concern about both the financial reporting treatment and the lack of adequate audit procedures.
(1) My Digonta
Revenue has increased due to the success of a new incentive scheme, “My Digonta” which was
introduced on 1 April 2023 and closed to new members on 30 September 2023.
During the six months to 30 September 2023, customers who booked for services of Diganta
for an event were invited to pay an annual membership fee of BDT 5,000 for the “My Digonta”
scheme. This entitles the members of My Digonta to a discount of 20% for any additional
events they book within one year of joining My Digonta. All booked events under the discount
scheme must take place before 31 March 2026.
Many customers have signed up for My Digonta. Membership fees totaling BDT 9,000,000
were received and recognised as revenue in the year ended 31 March 2024.
In the year ended 31 March 2024, My Digonta members booked additional events totaling BDT 30
million, after deducting the 20% discount. At the time of booking, My Digonta members are
required to pay a deposit of 50% of the total amount for the event, which is non-refundable. These
deposits have been recognised in the revenue in the year ended 31 March 2024.
(2) Payments by share options
During the year ended 31 March 2024, Digonta issued share options to a key supplier rather
than paying them in cash. A comment in the Board minutes suggests that the total value of the
goods received by Digonta in return for the options was BDT 12 million and the share options
issued had a fair value of BDT 11 million.
No entries were recorded for the share options issued or for the goods received, as the options
cannot be exercised until 30 April 2026.
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 Exhibit 2: Other audit matter - Investment Property Vs PPE
Digonta carries all land and buildings, including investment property, at fair value. On 20
December 2023 the Community Centre building in Dhaka was made empty and is to be leased out
for the next five years. The building was originally purchased BDT 45 million back on 5 January
2020 and as at last valuation on 31 March 2021 it was valued at BDT 56 million. Its fair value on
20 December 2023 was BDT 62 million and on 31 March 2024 is BDT 64 million. The depreciation
policy for buildings is straight line over 50 years, measured to the nearest month.
Our audit work to date shows that the asset has been included in property, plant and equipment in the
year end statement of financial position, but no other audit works on this issue has been performed.
Requirements:
For each of the matters of concern identified in Exhibit 1:
i) Set out and explain the correct financial reporting treatment, identifying any additional
information you require; and 4
ii) Explain the key audit risks that arise. 4
For Exhibit 2:
iii) set out how to account for the change in the use of this asset and outline the audit
adjustments required; and 4
iv) List the audit procedures which should be performed. 4
4. You are a senior manager at Kazi Hoque & Co., Chartered Accountants (KHC). Your firm has recently
accepted appointment as auditor of Lifeline Pharma Limited (Lifeline) for the year ended 30 th June
2024 on request of its Board chairman. This is the first year of KHC has been appointed as auditor and
you have been assigned as audit manager for Lifeline. As part of the obtaining understanding of the
entity, your team members have prepared a memo for your review (Exhibit 1). Your team also collected
prior year audited financial statements and bought few matters for your attention (Exhibit 2).
Exhibit 1:
Memo on background and business model of Lifeline Pharma Limited
Background of Lifeline Pharma Limited
Lifeline Pharma Limited (Lifeline) is a private pharmaceutical company with registered office at Dhaka
and a factory at Gazipur. The company specializes in the manufacturing generic medications and
biosimilars. Lifeline has experienced rapid growth over the past five years, expanding its market
presence across the country. Furthermore, it has recently started exporting its manufactured medicine
in different countries including Africa and Middle East.
Mission and Vision:
Lifeline’s mission is to enhance and extend lives by providing access to affordable, high-quality
medications. The company envisions a world where every individual has the opportunity to live a
healthier, longer life, supported by advanced medical treatments.
Business model
Lifeline’s business model includes two types of sale: Retail sales and Institutional sales. Retail sales
are generated through sell of distributor. Lifeline uses distributor warehouse for storing its produced
medicines. Lifeline is responsible for creating demand for its product through various market
development and promotional activities though its sales force. Once customers places orders in
lifeline’s portal, it automatically triggers a notification to distributor for dispatching products. The
distributor is responsible for transporting and distributing Lifeline’s product to the customers across
the country. When dispatch notifications are triggered, distributors take goods from its warehouse and
delivers the product to the customer. Lifeline recognizes revenue when products are dispatched by the
distributor from warehouse. The distributor is responsible for collecting sales proceeds from customer
and maintaining goods in the warehouse. However, Sales price and credit period to the customers are
determined by Lifeline.
Second type of sale is Institutional sales where Lifeline sells its product to various government or non-
government institutions within and outside Bangladesh. Most of the institutional sales are made to
government institutes and hospitals. It is partial sales to different NGOs that work with health and
hygiene of mass population. Lifeline submits tender to these institutions offering prices of its products.
Once a tender is won, products are delivered by the distributor from its warehouse.
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 Additional Note:
The board of Lifeline is chaired by its majority shareholder Mrs. Shamima Ahmed who is the spouse
of Mr. Kawser Ahmed who is a senior bureaucrat of the Government. Several news media have
published news in the past that Mrs. Ahmed has used power and connections of his husband to win
various government contracts and bank loans. There are several media allegations against Lifeline that
it repeatedly uses expired raw materials in medicine manufacturing. However, Lifeline has always
declined the allegation.
Exhibit 2:
Matters from prior year audited financial statements:
• Prior audit report has been signed off by Wasim & Co. who have expressed a qualified audit
opinion in relation to inventory as the entity didn’t create allowance for obsolete and slow-moving
raw materials which represents a significant portion of inventories.
• Prior year audit fee was BDT 350,000 whereas KHC has been appointed with a Fee of BDT
275,000.
• Prior year audit report includes an ‘other matter’ paragraph which explains that there was a
predecessor auditor who expressed an unmodified audit opinion the comparative of prior year
financial statements.
• Opening retained earnings of the financial statement has been adjusted due to reversal of income
tax provision.
• Subsequent event disclosure mentions that Lifeline has received a claim by VAT authority for an
amount of BDT 15,000,000 as unpaid VAT.
Requirements:
a) Identify independence and ethical issues involved in accepting audit engagement with Lifeline,
Suggest remediation options. 4
b) Discuss briefly about the risk and safeguards an auditor should consider while engaging with
entities having Politically Exposed Persons (PEPs) in the board. 3
c) Discuss the initial audit procedures you plan to perform as first year auditor. Evaluate the impact of
qualified audit opinion by predecessor auditor in your current year audit procedures and audit opinion. 4
5. You are currently managing the audit engagement of Dynamic Apparels Limited (Dynamic) for the
year ended 31 December 2023. In a review meeting, your team members have brought following
matters to your attention:
Change of functional currency
Dynamic is engaged in exporting sportswear in various countries. Sales are done through Letters of
Credit (LC) where USD is the transaction currency. Invoices are also raised in USD. Therefore,
management of Dynamic has decided to change its functional currency to USD from BDT. They
believe changing functional currency would help them to avoid the risk of currency fluctuations.
Heavily automated accounting software
Dynamic uses CrystalPro as its accounting software. Software is highly automated as it maintains fixed
asset and Lease register, perform automatic depreciation calculation of Assets and ROU Assets, and
interest expenses on lease liabilities. CrystalPro automatically post relevant journal entries at month
end. The software further perform Expected Credit Loss (ECL) calculation based on outstanding
receivable data and post necessary adjustments. Purchase and sales order are raised and approved
through CrystalPro. It automatically recognizes purchase or sales when goods are received or delivered
against purchase or sales order. Dynamic has 3 user accounts in CrystalPro which are used by 5
employees for review and approval of transactions.
Actuarial valuation of employment benefits:
At the end of the financial year, Dynamic performed actuarial valuation of its employee benefit
obligation. Dynamic appointed an Actuary to perform the valuation considering various actuarial
assumptions. Actuary provided a report which shows that Dynamic experienced an actuarial loss of
BDT 28,058,694 on Plan Liabilities. Dynamic recognized the loss in statement of profit or loss.
Service Organization for payroll service
Dynamic has appointed “HR Solutions” (HRS) for providing payroll service. Under this service
arrangement, HRS prepare the monthly salary sheet based on attendance data from HR System. Salary
Sheets are reviewed by senior employee of HRS before they are sent for payment to the finance team.

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HRS only share the Employees’ Bank account number, bank name and payable amount. This is done
to avoid leakage of salary related sensitive information.
Insufficient income tax provision:
During our initial review of the financial statements, we have noticed that Dynamic have kept only half
of the required provision. Dynamic’s tax manager has informed us that they plan to settle the tax
assessment by paying only half of the calculated amount. This has been done earlier year as well.
Accordingly, there is no necessity of keeping entire provision in the financial statements.
Requirements:
a) Evaluate whether management assessment for changing its functional currency is appropriate.
Determine the probable impact of change in functional currency in your audit. 4
b) Design audit procedures to be performed in non-current asset, lease accounting, purchase and sales
transaction that uses automated IT software. 6
c) Explain auditor responsibilities regarding service organization and management specialists. Design
audit procedures to be performed regarding actuarial valuation of employee benefits and Payroll
processed by HRS. 4
d) Appraise tax manager’s position on income tax provision. Determine your course of actions as auditor. 4

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