ACCA · Question 07 · Planning and Risk Assessment
CASE SCENARIO: AgriGrow Tech Ltd
AgriGrow Tech Ltd is an agricultural technology startup developing drone-based crop monitoring systems. You are planning the audit for the year ended 30 September 20X6. AgriGrow has capitalized significant Research & Development (R&D) costs this year related to a new AI-driven drone model. They also received a substantial government grant conditional on creating jobs in rural areas. Due to rapid growth, AgriGrow recently established an internal audit department, which has spent the last three months reviewing the company's payroll controls.
QUESTION:
Regarding the capitalized R&D costs for the new AI-driven drone, which TWO of the following represent significant audit risks?
Answer options:
Research costs may have been incorrectly capitalized instead of expensed.
The government grant may have been offset against the R&D costs.
Management may have capitalized development costs before the project demonstrated technical feasibility and commercial viability.
The amortization period for the capitalized development costs may be too short.
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