ACCA · Question 05 · Audit framework and regulation
CASE 1: NEXUSCLOUD LTD
NexusCloud Ltd is a rapidly growing SaaS (Software as a Service) technology startup. You are an audit manager at TechAudit LLP. NexusCloud is preparing for an IPO and has requested TechAudit to provide both the statutory audit and IT system design services for their new revenue recognition platform. The audit committee currently consists of the CEO, the CFO, and one independent non-executive director. The engagement partner has just rotated onto the audit after the previous partner served for 7 years.
During the audit of NexusCloud's capitalized development costs, management provides a highly optimistic forecast of future revenues to justify the capitalization. Which of the following actions best demonstrates professional skepticism by the auditor?
Answer options:
Accepting the forecast as it is prepared by the CFO, who has extensive industry experience.
Requesting a written representation from management confirming the accuracy of the forecast.
Challenging the assumptions in the forecast by comparing them to independent industry growth reports and historical accuracy of previous forecasts.
Immediately concluding that the development costs are impaired and demanding an adjustment.
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