Planning and risk: practice

Planning and risk

Performance materiality is set below materiality so that the total of uncorrected and undetected misstatements is unlikely to exceed materiality.

Short questions in the course’s own format, not ACCA’s: the exam itself is all written. Written questions in the exam’s shapes

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Question 1 · Course practice question · Planning and risk2 marks

Planning, materiality and risk

The draft figures of Penrith Co, a manufacturer, are below, in $000. Selling prices in its market were flat during 2026 and the cost of its main raw material rose by about 5%. There were no changes in product mix, suppliers or credit terms.

The audit firm measures gross margin on revenue, inventory and payables days on cost of sales, and receivables days on revenue, all on closing balances and a 365-day year.

Penrith Co: draft figures, years ended 31 December
$000	2026	2025
Revenue	45,625	40,150
Cost of sales	29,200	28,105
Inventory	7,200	4,620
Trade receivables	6,250	5,500
Trade payables	3,600	3,465

Which risk of material misstatement is consistent with all of these figures? (2 marks)

Revenue may be understated (completeness)Revenue may be overstated through fictitious sales (occurrence)Closing inventory may be overstated (existence or valuation), understating cost of salesPurchases and trade payables may be understated (completeness)