Ajax Finance Ltd (Ajax) provides small and medium sized personal, car and business loans to clients.

It has been operating for more than 10 years and run throughout this time by Bill Short. Bill has been the public face of the finance company, appearing in most of its television and radio advertisements, and developing a reputation as a friend of the ‘little person’ who has been mistreated by the large finance companies and banks.

Ajax’s major revenue stream is generated by obtaining large amounts on the wholesale money market and lending in small amounts to retail customers. Margins are tight, and the business is run as a ‘no frills’ service. Offices are modestly furnished and the mobile lenders drive small, basic cars when visiting clients. Ajax prides itself on full disclosure to its clients and all fees and services are explained in writing to clients before loans are finalised. However, although full disclosure is made, clients who do not read the documents closely can be surprised by the high exit charges when they wish to make early repayments or transfer their business elsewhere.

Ajax’s mobile lenders are paid on a commission basis; they earn more when they write more loans. For example, they are encouraged to sell credit cards to any person seeking a personal loan. Ajax receives a commission payment from the credit card companies when it sells a new card and Ajax also receives a small percentage of the interest charges paid by clients on the credit card.

Required

(a) What type of misstatements would be most likely for Ajax’s revenue?

(b) What type of controls should be in place at Ajax to stop the misstatement of revenue?