Your Audit Client, Red Roses Ltd, Has a New Management

Multiple Choice

Your audit client, Red Roses Ltd, has a new management incentive scheme in place, with bonuses calculated on the basis of the increase in net profit over the previous year.The basis of the bonus will remain the same for the next three years.Your client has had a very poor year and there is no way this year that it will be able to meet its budget or last year's net profit.Which of the following represents a high inherent risk for this year?

A) Insufficient provisions.
B) Next year's expenses taken up this year.
C) Next year's sales incorrectly taken up this year.
D) Overstatement of debtors.