An airline company has been adversely impacted by the global financial crisiss effect on business travel. In
Question:
An airline company has been adversely impacted by the global financial crisis’s effect on business travel. In addition to lower overall demand, the airline company faces increased competition from other airlines, which are heavily discounting flights. The airline company policy for revenue is to credit sales to revenue received in advance, and subsequently transfer to revenue when passengers or freight are uplifted or tours and travel air tickets and land transportation are utilized. In preparing for the 2016 audit, you review the 2015 financial statements and note that revenue from passengers represents 8 percent of total revenue. The interim financial information for the 2016 year shows a 6-percent fall in revenue from passengers and an 11-percent decrease in revenue from passengers in advance. You read in the financial press that the global financial crisis has led to an increased incidence of fraud and the majority of these frauds are committed by company directors and senior managers.
Required
Explain why the revenue from passenger accounts in the income statement is at significant risk of fraudulent financial reporting by management.
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
Step by Step Answer:
Auditing A Practical Approach
ISBN: 978-1118849415
2nd Canadian edition
Authors: Fiona Campbell, Robyn Moroney, Jane Hamilton, Valerie Warren