Ally Bobyk is conducting the audit of a wholesale electrical goods distributor, Electra Ltd. Electra supplies appliances to hundreds of individual customers in the Toronto area. It maintains detailed accounts receivable records on a computer system. The customer account master fi le is updated at the end of each business day. Each customer record in the master fi le contains the following data: • customer account number • customer address • open (unpaid) invoices at the beginning of the month, by invoice number and date • sales during the current month, by invoice number and date • individual cash receipts during the current month • date of last sale • date of last cash receipt Ally is planning to confirm selected accounts receivable as at the end of the current month. She will have available a computer fi le of the data on the accounts receivable master fi le on the date on which the company sends monthly statements to its customers. Ally has a generalized software package to help her in this task. Required: Detail how Ally will be able to use the computer software package and accounts receivable master fi le to help her in the audit of accounts receivable.
> Mitch Ziegel and Rosie Punter are discussing the audit plan for a large manufacturing company. The company has two main manufacturing plants plus several warehouse and distribution centres (one in each province). The company has a large investment in tra
> Springsteen Ltd. is a new audit client for the 2020 financial year. Springsteen’s financial statements for the 2019 year, the last with the previous auditor, were prepared on the assumption of a going concern. An unmodified audit opinion with a going concer
> Manitoba Metal Fabricators (MMF) is a company that makes steel components for the construction industry. It specializes in extreme precision manufacturing where tolerances are measured in distances of less than one millimetre. Its products are used in re
> Phil Nanere is the partner in charge of the audit for a new client, Western Wonderland (WW). The client engaged Phil’s audit firm in November 2019, in preparation for the 2020 audit. From January 30, 2020, onwards, WW has consistently paid its suppliers l
> You, a recently designated CPA, have agreed to serve on a committee that is organizing a sports adventure race as a fundraiser for Far West Camp, a camp for teenagers from all economic backgrounds. Far West Camp has obtained support from two sponsors tha
> Beautiful Shoes Inc. is a high-end ladies’ shoe store. It has recently expanded its operations and signed a long-term lease in a popular shopping centre. The owner, Beverly Hung, is concerned because the lease agreement requires that she submit to the la
> For each of the following situations, indicate what type of modification/audit report is most appropriate. a. There is a scope limitation and it is material. However, the overall financial statements are still presented fairly. b. There is a departure from
> a. Are there any going concern issues for HCHG? Explain. If so, what are the mitigating circumstances? b. How will you recommend that the issues be handled in the financial statements and the audit report?
> a. Explain your responsibilities with respect to the Shady Oaks cafeteria fire. b. How will this event be handled in the HCHG financial statements and the audit report?
> Based on your answer to question 13.13, explain what type of audit opinion you would issue. Why? Data from Question 13.13: Required: Analyze the events surrounding the sale of FH’s land and buildings. Is it a subsequent event? If so, which type?
> You are the audit senior in charge of the audit of Blackburn Ltd., and you are auditing the company’s trade creditors at December 31, 2020. A junior member of the audit team has been checking suppliers’ statements agai
> Analyze the events surrounding the sale of FH’s land and buildings. Is it a subsequent event? If so, which type?
> Steven Erasmus has had difficulties throughout the audit of Kingston Catering. The company is a long-standing client of the audit firm and there have been no problems in the past. However, four months into the start of the financial year, the company’s compu
> The staff at Nguyen and Partners have completed the necessary audit work for Manitoba Metal Fabricators. The partner responsible for the audit is now reviewing the audit file. She has come across the Schedule of Unadjusted Differences and is considering the
> Katrina Lukacs is the engagement partner of the audit of Champion Securities, an investment company. Most of Champion’s assets and liabilities are financial and their valuation is critical to the assessment of the company’s solvency and profitability. Katr
> Lucy Huang has just finished her first audit assignment. She is now assisting her audit manager, Tom Lucas, in wrapping up the engagement. He has asked Lucy to make a list of all un cleared review notes, to-do items, and audit procedures, and to note for e
> You are the auditor of John Benson Ltd, a manufacturer of a variety of paper and cardboard stationery products. Product lines range from everyday items that are low value but high volume to more expensive and specialized items that are produced for niche
> The auditor’s working paper for auditing inventory balances for the client New Millennium Eco products appears in Figure 11.3. It shows the details of the net realizable value (NRV) tests. Required: a. Why does an auditor test for NRV
> Stenton Toys Ltd. is a toy retailer with stores in each of the Canadian provinces. Stenton has a head office and a central warehouse in Mississauga, Ontario. All inventory purchases are made centrally and are held in the Mississauga warehouse; they are the
> You attended the inventory count of your client Davis Hydraulics Ltd. You observed the following during the count: 1. Warehouse staff counted specific areas of the inventory as determined by the warehouse supervisor; staff members, including the warehouse s
> Refer to Professional Application Question 11.4 regarding Lily Window Glass Co. Now assume that you are the audit senior of Daffodil & Co. and are responsible for the audit of inventory for Lily. You will be attending the year-end inventory count on Decem
> Greystone Co. is a retailer of women’s clothing and accessories. It operates in many countries around the world and has expanded steadily from its base in Canada. Its main market is 15- to 35-year-olds and its prices are mid to low range. The company’s y
> Lily Window Glass Co. (Lily) is a glass manufacturer that operates from a large production facility, where it undertakes continuous production 24 hours a day, seven days a week. Also on this site are two warehouses where the company’s raw materials and fi
> You are the auditor of Fenton Electronics Ltd., which has recently installed a computerized bar code system to record goods received, sales, and inventory quantities. The company is a retailer of electrical products. 1. When the goods are received, the r
> Key documents are used to record and maintain adequate inventory and property, plant, and equipment accounts. Required: For each of the following documents, describe its purpose and how it contributes to internal control over the related function: a. in
> Wear Wraith (WW) Co.’s main activity is the extraction and supply of building materials including sand, gravel, cement, and similar aggregates. The company’s year end is December 31 and your firm has audited WW for a n
> Your firm is the auditor of Day brook Insurance Brokers Ltd., which operates from a number of branches and provides insurance for the general public and businesses. The company obtains insurance from large insurance companies and takes a commission for it
> Pineapple Beach Hotel Co. (Pineapple) operates a hotel providing accommodation, leisure facilities, and restaurants. Its year end was April 30, 2020. You are the audit senior of Berry & Co. and are currently preparing the audit program for the year-end a
> A copy of the auditor’s working paper for auditing additions and disposals relevant to the balance of property, plant, and equipment (PPE) for the client New Millennium Eco products is presented in Figure 11.4. Required: a. What assert
> Your firm is auditing the financial statements of Newthorpe Manufacturing Ltd. for the year ended June 30, 2020. You have been assigned to the audit of the company’s property, plant, and equipment, which includes freehold land and buildings, plant and mach
> Securimax Limited has been an audit client of KFP Partners for the past 15 years. Securimax is based in Waterloo, Ontario, where it manufactures high-tech armour-plated personnel carriers. Securimax often has to go through a competitive market tender pro
> Your firm is responsible for auditing the financial statements of Hucknall Manufacturing Ltd. for the year ended November 30, 2020. The company operates from a single site. Its sales are $5 million and the profit before tax
> Blake Co. assembles specialist motor vehicles such as freight trucks, buses, and delivery trucks. The company owns four assembly plants where parts are delivered and assembled into the motor vehicles. The motor vehicles are assembled using a mix of robot
> For each of the following statements, identify the audit assertion that it relates to: a. Inventories are recorded at the lower of cost and net realizable value. b. There is no inventory on consignment. c. All asset additions during the year have been re
> You are the auditor of Sofasellers Ltd., which buys furniture from manufacturers for sale to the public. You have been asked to audit certain aspects of the computerized purchasing and accounts payable system. The company has a head office, a warehouse, an
> Lise Couture is documenting the purchasing and cash payments processes at Hardies Wholesaling. Hardies Wholesaling imports garden and landscaping items, such as pots, furniture, fountains, mirrors, and sculpture, from suppliers in Southeast Asia. All ite
> Trillite Ltd. has had strong growth over the past three years. The company is involved in mining in northern Canada. While revenues have been increasing, the costs of mining at its remote locations have increased as well. An investigation revealed that t
> Diamond Construction is an owner-managed entity with contracting revenues of $20 million in 2020. As construction is a labour-intensive industry, one of Diamond’s largest expense accounts is labour and wages. You are a first-year auditor at Klein and Part
> GGG Electronics builds shortwave radios. Its manufacturing plant is also a warehouse. When parts are received, the receiver compares the type of goods and quantity with a copy of the purchase order available online. If the quantity received differs from t
> Management of Tarnawski Ltd. has requested a review of internal controls over cash payments for parts and supplies purchased at its various manufacturing plants. Cash payments are centrally processed at head office based on vouchers prepared and approved a
> Your firm is the external auditor of Bestwood Engineering Ltd., which manufactures components for motor vehicles and sells them to motor vehicle manufacturers and wholesalers. It has sales of $25 million and a profit before tax of $1 million. The company h
> Key documents are used throughout the purchases, payables, and payroll process, and each supports an internal control function. Required: For each of the following documents, describe its purpose and how it contributes to internal control over the purch
> MO has a high volume of casual staff who work during peak season to support the increase in workload in the following main areas: 1. distribution: warehouse staff to pack, store, and receive goods 2. drivers: to deliver goods to retail stores 3. sales and
> Integrated Measurement Systems Inc. (IMS) is a Canadian public company that manufactures high-end measuring devices used primarily in the oil and natural gas industries. Ted Pollock, IMS’s CEO, is a proponent of strong corporate governa
> You are reviewing the audit work for Online Ltd., a large Canadian company. Online uses a service bureau to process all wages. Time sheets are authorized by the appropriate supervisor, batched, and sent to the service bureau for processing. Detailed payr
> You are the audit senior for the audit of Grosse Ltd. and have been given the audit fi le to review. The reporting date is December 31, 2020, and the materiality for the client has been set at $200,000. You obtained the information listed below from your
> Figure 10.6 is a copy of the auditor’s working paper for auditing accounts payable for the client New Millennium Eco products. Required: a. Explain the nature of the test being documented in the working paper. b. Compare the informatio
> Venture Volunteers for Troubled Teens is a not-for-profit entity that provides counselling services to troubled teens and adolescents. While the majority of its funding comes from the government, the group also participates in a variety of fundraising act
> For each of the following statements, identify the audit assertion that it relates to: a. All purchases transactions that occurred during the period have been recorded. b. Accrued payroll liabilities are liabilities of the entity at the end of the period
> You have been assigned to perform tests of controls on the sales system at EDB Ltd. as part of the December 31, 2020, audit. EDB is a wholesaler of bathroom supplies such as vanity units, toilets, taps, and sinks. During testing, you noted the following
> Bestwood Ltd. is planning to replace its computerized sales accounting system. The managing director has asked for your advice on certain matters relating to the new system. The existing system uses the computer to produce sales invoices from handwritten
> Venture Volunteers for Troubled Teens (VVTT) is a not-for-profit entity that provides counselling services to troubled teens and adolescents. While the majority of its funding comes from the government, the group also participates in a variety of fundrais
> Soak City Waterpark is a family-owned business just outside of Winnipeg. The waterpark is only open for business from May to September. During the winter months, the waterpark undergoes repairs and maintenance upgrades. The capital assets for Soak City a
> Harlan Venture Inc. (HV) operates a restaurant named Harlan’s in Toronto. The shareholder, Stephen Painter, is concerned whether the system and controls in place at the restaurant are appropriate to monitor and control the operations of the restaurant an
> As the internal auditor of the Sell anything Group of companies, you have been asked to investigate the cash sales system of Stationery Ltd., one of the subsidiaries. Stationery sells office supplies in the Halifax area. Its prices are highly competitive a
> Namini Corp. sells its products to clients ranging from proprietorships to medium-sized entities. Namini is controlled by two family members, and most of the employees are casual staff employed during the busy seasons (November 1 through January 15, and
> Key documents are used throughout the sales process and each supports an internal control function. Required: For each of the following documents, describe its purpose and how it contributes to internal control over the sales cycle: a. Customer order
> James Bach is a CPA student working on the confirmations working paper from one of his clients, Dunstan Electric Co. He has so far summarized the results of his testing as shown in figure 9.6. Required: Help James complete
> You have been assigned to audit the sales and accounts receivable balances of Coppero Engineering Ltd. for the year ended September 30, 2020. Coppero Engineering is a major manufacturer of steel parts and fixtures for other manufacturers in the engineerin
> Your firm is the external auditor of South wood Trading Ltd. and you are auditing the financial statements for the year ended June 30, 2020. South wood Trading has sales of $25 million and the accounts receivable at June 30, 2020, were $5.2 million. The en
> Figure 9.5 is a copy of the auditor’s working paper for auditing accounts receivable balances for the client New Millennium Eco products. It shows the details of the cut-off tests. Required: a. Find the details of the tr
> It is common practice for companies to make two allowances for doubtful accounts: 1. The specific allowance is based on accounts the company has reason to suspect may not be paid. 2. The general allowance relates to accounts as yet unknown but that experi
> Your client is BigC Ltd., a large private firm with offices in all major cities of Canada. BigC specializes in selling concentrated fruit juices to Canadian and overseas buyers. This is the first year your &ium
> For each of the following statements, identify the audit assertion that it relates to: a. Sales are made to customers that do not have approved credit. b. Goods not ordered by the customer are shipped. c. Unit prices on customer invoices are incorrect. d
> Tinkerbell Toys Co. (Tinkerbell) is a manufacturer of children’s building block toys. It has been in business for more than 35 years and it sells to a wide variety of customers including large and small toy retailers across the country. The company’s yea
> North West Paper Ltd. provides cardboard, paper, and plastic packaging materials to a large number of manufacturers and distributors in all provinces. The cardboard and paper division is a well established business, but North West has been providing plas
> Anna Mourani has the task of designing the audit program for the payroll area. There have been no recent changes to the payroll system or its interface with the general ledger. Among other tests, Anna is considering using the following analytical procedu
> Ann Marcus, CPA, is performing an audit for one of her clients, Artistcraft Ltd., a glass factory, for its December 31, 2020, year end. The audit program requires a substantive analytical procedure to be performed on the reasonableness of Artistcraft’s i
> Seb Lee and Boris Shonk off are discussing the audit program for the revenue account. Seb and Boris disagree about whether they should use procedure A or B below to test the occurrence assertion for the revenue account: A. Select a sample of sales from th
> Boris Shonk off has another suggestion for the audit program for the revenue account. This time he suggests: Select a sample of sales from the sales journal and agree the details in the journal to the sales invoices, delivery slips, and customer orders.
> Boris Shonk off suggests the following audit procedure should be included in the audit program to gather evidence on the cut-off assertion for the revenue account: Select a sample of sales from the sales journal and agree the dates on the invoices to the
> Carla DaCosta has been asked to join the team responsible for designing the audit program for a new client, Gaskin Industries Ltd., a manufacturing and wholesaling firm. Gaskin recently went public and is now listed on the Toronto Stock Exchange. Carla ha
> James Wu has been assigned the audit planning for the property, plant, and equipment section for a large manufacturing audit client. The client built a new factory during the first six months of the year; therefore, significant additions were made to its p
> The following items are documented in the audit working papers: 1. Sales transaction included in the year ended December 31, 2020, but evidence from the cut-off procedure suggests that the sale should be dated January 2, 2021 ($1,250,000). 2. Warranty ex
> Analysis is a substantive audit procedure that auditors use when they are performing financial statement audits. Required: a. Distinguish between analysis and analytical procedures. b. Identify the three stages in the audit process at which analysis can
> Answer the following questions based on the information presented for Cloud 9 in Appendix A of this book and the current and earlier chapters. You should also consider your answers to the case study questions in earlier chapters. Required: Based on ever
> Review your answers to the previous questions. Comment on the persuasiveness of evidence from each test. Explain any factors that would affect your assessment.
> Your assurance services manager has requested that you use substantive analytical procedures to calculate Shady Oaks’ estimated revenue for patients staying in the centre, excluding medical procedures and ancillary costs such as medication. Required: Ba
> a. Identify two key account balances likely to be affected by the above information. b. For each account balance identified in part (a), identify and explain the key assertions most at risk. c. For each assertion identified in part (b), identify specific sub
> Marty Novakowski has to audit the sales transactions of Okawa Ltd., which supplies tools to the mining industry. Okawa carries a large number of different makes and models of standard mining tools. It also designs and manufactures tools for special purpos
> Connie Cyr is the recently appointed engagement partner of the audit of Camel Ltd. She has just taken over the audit from Kar-Ming Leo, who rotated off the audit after a seven-year period as the engagement partner. Kar-Ming had a small portfolio of clien
> Mathieu Lapointe has the task of reviewing the evidence from analytical procedures conducted by the audit juniors on the audit of Soleil Services Ltd. The audit juniors have reported the results of these analytical procedures: 1. Comparison of depreciati
> Hilltop Partners is planning the audit for one of its clients. Jake Hilltop is performing the risk assessment at the assertion level for the accounts payable account to determine the nature and timing of the substantive work to be performed. Jake has ass
> You are testing the controls over bank accounts for your audit client, Manitoba Ltd. You note that the responsibility for bank reconciliations has changed due to a corporate reorganization halfway through the current financial year. Both the staff member p
> Two of your friends from high school will soon realize their lifetime dream of opening an English style pub. They recently spoke with their accountant, who indicated that they should ensure that they implement some strong controls. They have no idea what
> Alabama Industries manufactures and wholesales small tools. It sells the tools to a large group of regular customers and makes most sales by telephone to this group. Additionally, it receives orders online from its sales team, who sign up new customers w
> The worksheet you completed for the case study question in chapter 8 includes your estimates of the overall risk assessment (ORA) and the acceptable detection risk (DR) in the sales to cash receipts process. Required: Based on your ORA and DR estimates,
> Within a client’s IT system, supplier information is contained in a supplier master fi le (SMF). Each supplier has a unique supplier code. If the purchasing clerk attempts to place an order from a supplier not in the SMF, the order cannot be processed. To
> International Bank is experiencing bad publicity surrounding huge fraud losses in its foreign currency department. Accusations are being made in the press that the rogue trader blamed for the losses was operating outside the official guidelines with the ta
> The following errors due to sloppy paperwork and poor controls were found during an audit. 1. A customer’s order was shipped without credit approval. 2. Some sales made in January were recorded as being made in December. The company has a December 31 fisc
> Carmel Harrison runs Emerald Spa, a business providing women-only hairdressing, beauty, relaxation massage, and counselling services in a small tourist town. Ninety percent of the clients using the beauty and massage services at Emerald Spa are weekend v
> The sales transactions at Alberta Park, a new audit client, are handled by a software application that is not supported by very detailed documentation. The audit partner requests that the team re-perform some controls to ensure that the software applicat
> Arne Eklund, the audit senior, is reviewing the working papers written by the audit assistant on the audit of Quebec Creepers, a nursery and retailer of garden accessories. Arne reads the following description of the results of testing of inventory contr
> Lisa Curtis is documenting the purchasing and cash payments processes at Hardies Wholesaling. Hardies Wholesaling imports ladies clothing such as T-shirts, blouses, skirts, dresses, and pants from suppliers in Southeast Asia. All items are non-perishable
> Required: a. Identify the key assertion at risk for payables in relation to payments made prior to receipt of goods. b. For the control procedures (1) to (5) above for payables: i. Identify the key preventive internal control that directly addresses the
> Required: For each of the accounts for Shady Oaks (1 and 2 above) identified to be a significant risk: a. Determine the key assertion at risk. b. Describe a practical preventive internal control that would directly address t
> In relation to the new manufacturing costing system, describe two automated application controls that you would expect to find.
> Answer the following question based on the information presented for Cloud 9 in Appendix A of this book and in the current and earlier chapters. You should also consider your answers to the case study questions in earlier chapters. While Cloud 9 maintain
> Select two components of internal control. Explain how the roles of the internal and external auditors would differ when assessing these components in relation to the new manufacturing costing system.
> Write a management letter to Justin and Sarah Morris.
