Implications of discovering accounting errors in previous year’s financial statements.

Slater & Gordon Limited (“Slater & Gordon”) is a consumer law firm that provides legal
services specialising in asbestos litigation, personal injuries, litigation, wills, probate,
industrial and employment law, family law and other advisory services. On 29 June 2015
Slater & Gordon announced two (2) errors had been discovered in previous year’s financial
statements for years ended 30 June 2012, 30 June 2013, 30 June 2014 and 30 June 2015. This
has created significant discussion amongst financial statement users, analysts, regulators and
The purpose of this group assignment is to analyse the effects of these events on Slater &
Gordon’s financial statements and consider the need for and difficulty of preparing relevant
and reliable financial statements. Marks will be awarded for work which clearly demonstrates
an in depth understanding of these broader issues for financial statement preparers and users.
As stated in the attached marking criteria, up to 2 marks will be awarded for the generic skills
required to prepare this assignment (referencing, structure and professional presentation).

a) Describe in your own words the nature of the two (2) accounting errors recently
discovered in Slater & Gordon’s financial statements for the years ended 30 June
2012, 2013, 2014 and 2015.
b) Outline the correct accounting treatment for the two (2) transactions that were in
error. Where appropriate include technical references.
c) Further to your description in Part A (a), explain how the two (2) errors would affect
the usefulness of Slater & Gordon’s financial statements for:
(i) lenders: and separately
(ii) shareholders.

Part B (5 marks 450 words)
In the article “Hedge fund VGI says there are more cockroaches in Slater and Gordon’s
kitchen’’ Slater & Gordon’s accounting policy for the recognition of revenue is described as
a) Referring specifically to the amounts recognised in Slater & Gordon’s financial
statements for the year ended 30 June 2014, explain the implications of their revenue
recognition accounting policy on trade debtors and disbursements (these accounts are
part of receivables, see Note 9) and work in progress account balances; and
b) Considering relevant requirements from AASB 118(FP) and your explanation in Part
B(a), prepare a concise, persuasive argument as to whether in your opinion Slater &
Gordon’s revenue recognition accounting policy is or is not aggressive.

Part C (5 marks 450 words)
According to the Australian Financial Review, “The nature of these errors has called into
question the standard of their [Slater and Gordon’s] accounting”.
Evaluate this statement. As a guide, your evaluation could consider the objectives of financial
reporting; relevant principles from the Code of Ethics for Professional Accountants;
difficulties of preparing relevant and reliable financial statements and your answers to Part
A(c) and Part B(b). You may also want to consider why Slater & Gordon chose their
accounting policy on revenue recognition. You must include a conclusion that is
accompanied by a supporting reason(s) for your view.

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