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正确答案：
(c) Choo Wang’s remuneration package
Benefits of PRP
In general terms, performance-related pay serves to align directors’ and shareholders’ interests in that the performancerelated
element can be made to reflect those things held to be important to shareholders (such as financial targets). This, in
turn, serves to motivate directors, especially if they are directly responsible for a cost or revenue/profit budget or centre. The
possibility of additional income serves to motivate directors towards higher performance and this, in turn, can assist in
recruitment and retention. Finally, performance-related pay can increase the board’s control over strategic planning and
implementation by aligning rewards against strategic objectives.
Critical evaluation of Choo Wang’s package
Choo Wang’s package appears to have a number of advantages and shortcomings. It was strategically correct to include some
element of pay linked specifically to Southland success. This will increase Choo’s motivation to make it successful and indeed,
he has said as much – he appears to be highly motivated and aware that additional income rests upon its success. Against
these advantages, it appears that the performance-related component does not take account of, or discount in any way for,
the risk of the Southland investment. The bonus does not become payable on a sliding scale but only on a single payout basis
when the factory reaches an ‘ambitious’ level of output. Accordingly, Choo has more incentive to be accepting of risk with
decisions on the Southland investment than risk averse. This may be what was planned, but such a bias should be pointed
out. Clearly, the company should accept some risk but recklessness should be discouraged. In conclusion, Choo’s PRP
package could have been better designed, especially if the Southland investment is seen as strategically risky.

正确答案：
(d) Factors that should be considered by the directors of ITL include:
(i) The cash flows are estimated. How accurate they are requires detailed consideration.
(ii) The cost of capital used by the finance director might be inappropriate. For example if the Snowballer proposal is less
risky than other projects undertaken by ITL then a lower cost of capital should be used.
(iii) The rate of inflation may vary from the anticipated rate of 4% per annum.
(iv) How strong is the Olympic brand name? The directors are proposing to pay royalties equivalent to 6% of sales revenue
during the six years of the anticipated life of the project. Should they market the Snowballer themselves?
(v) Would competitors enter the market and what would be the likely effect on sales volumes and selling prices?
N.B: Only three factors were required.

正确答案：
(c) (i) Audit report implications
Audit procedures have shown that there is a significant level of doubt over Dexter Co’s going concern status. IAS 1
requires that disclosure is made in the financial statements regarding material uncertainties which may cast significant
doubt on the ability of the entity to continue as a going concern. If the directors refuse to disclose the note to the financial
statements, there is a clear breach of financial reporting standards.
In this case the significant uncertainty is caused by not knowing the extent of the future availability of finance needed
to fund operating activities. If the note describing this uncertainty is not provided, the financial statements are not fairly
presented.
The audit report should contain a qualified or an adverse opinion due to the disagreement. The auditors need to make
a decision as to the significance of the non-disclosure. If it is decided that without the note the financial statements are
not fairly presented, and could be considered misleading, an adverse opinion should be expressed. Alternatively, it could
be decided that the lack of the note is material, but not pervasive to the financial statements; then a qualified ‘except
for’ opinion should be expressed.
ISA 570 Going Concern and ISA 701 Modifications to the Independent Auditor’s Report provide guidance on the
presentation of the audit report in the case of a modification. The audit report should include a paragraph which contains
specific reference to the fact that there is a material uncertainty that may cast significant doubt about the entity’s ability
to continue as a going concern. The paragraph should include a clear description of the uncertainties and would
normally be presented immediately before the opinion paragraph.