Question

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Answer 1

Step-by-step explanation:

DEF Ltd is a global leader in the manufacture, integration and support of networking and telecommunications systems. The company sells broadband wireless products and a line of handset equipment to operators in emerging and established telecommunications markets worldwide. The auditor reported material weaknesses in the company’s internal controls to the audit committee.    Significant deficiencies related to revenue and deferred revenue accounts and the associated cost of sales were noted. These material weaknesses were evidenced by the identification of six separate transactions aggregating approximately $5 million in which revenue was initially included in the Company’s financial statements before all criteria for revenue recognition were met. In addition, there were other transactions for which there was insufficient initial documentation for revenue recognition purposes, but which did not result in any adjustments to the Company’s financial statements. If unremediated, these significant deficiencies have the potential of misstating revenue in future financial periods.   The Company’s planned remediation measures reported to the audit committee include the following:   a.      The Company plans to design a contract review process in China requiring financial and legal staff to provide input during the contract negotiation process to ensure timely identification and accurate accounting treatment of nonstandard contracts.