Isla Airways is a new client of your audit firm. Its accounting policy for revenue is to credit to revenue
Isla Airways is a new client of your audit firm. Its accounting policy for revenue is to credit to revenue received in advance, and subsequently transfer to revenue in the income statement when passengers or freight are uplifted, or when tours and travel air tickets and land content are utilised.
Your review of last year’s financial statements indicates revenue from passengers represents 75 per cent of total revenue, but that this year there is a five per cent fall in revenue from passengers and a ten per cent decrease in revenue from passengers in advance.
You have read articles in the financial press which suggest an increased incidence of fraud due to the global financial crisis, and that the majority of these frauds are committed by company directors and senior managers.
Explain why the revenue in income statements is at significant risk of fraudulent financial reporting by management.
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