Lecture Notes 1.pdf

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Department
Financial Accounting
Course
MGAD20H3
Professor
Julie Mc Donald
Semester
Summer

Description
Week 2 Q1: draft the memo to the engagement partner outlining your alternatives and what course of action you feel should be taken First time in charge, audit was started, from performing procedures to review, cost was significant, hiding sth Topic: change nature of audit (client asked) Logic: who made the decision? Why? Is it allowed? A#1: keep going on audit ( public) Not possible, immediately stop, talk to the partner to determine what to do next E.G. can you help to confirm with the client to see who the decision maker is, if: A. owner – ask why and let them know the consequence if the auditing is not done B. someone else (accountant) – let owner know, and confirm with him again if he wants the audit to continue or not. Go back to replan as risk increase – someone may hide sth A#2: change to review ( private) Yes we can do that as long as it is not required by the bank. We can do that if: a. owner is aware of it b. right person made the decision c. no restriction by the bank E.G. can you help to confirm with the client and see if above criteria are met? And if we do decide to change the nature of the engagement, how can we bill the work that already done? Even if we are going to do the review, we still need to do the assess of risk. A#3 :walk away I don’t recommend this because: hurt business relationship, loss money, etc I recommend this because, e.g We may not want to involved with some illegal behavior. Q2: give Jon advice about alternative actions, considering the constraints of the ICAO’S Rules of Conduct Oneway corporation – tax and audit client Jack—Jon’s tax client, retiring, thinking selling share to Jill Jill—Phil’s tax client, Phil may gram the client from John Bill—Jon’s friend and tax client, could be in minority is selling occurs. What to know Jack’s plan. Topic: rules of conduct It’s ok for John to do both tax and auditing at the same time. Nothing is wrong in previous years ( must be metioned). However if Jack &Jill don’t know Bill and John are friends— big problem ( transparence?) Now selling shares changes the nature of the service. Familiarity Threat: John’s advice on Jack may have effect on Bill, and the friendship b/t them will have a negative effect on John’s independence. Self- interest threat : John’s own interest may be also affected by his advice on Jack John cannot be both friend and tax advice to Bill, cannot keep all three. Recommendation: drop Bill & Jack, and keep the auditing work as it is the major business of John. Q3: give your view of the accounting treatment and convince the auditors that they are wrong Large shop-> small, recognizing revenue immediately, auditor objected, role of consult Topic: revenue recognition Criteria: reward& risk, earning process ends, price is fixed, collectability Constrains: IFRS public Users: Client’s objective: Max earning / Auditor: fair FS conflict Argument immediately Argument for defer  Agreement exist Collectability not assured  Delivery occurred Earning process not end  Amount can be estimated Risk & benefit not transferred A#1: Cash basis, record revenue as money received This only occurs if collectability is not assured. a. New market, new client, no history data b. small stores  easier to bankrupt ==>collectability is not assured A#2: Record $300,000 as revenue, and $20,000 as AR. Recognition immediately a. Agreement exist as $100,000 paid immediately. b. BBean started to support the small town shops as it started, indicate service delivery c. The price is fixed and easily estimated As such, revenue can be recognition immediately. A#3: Record present value of future $20,000 as AR, and $100,000 as deferred revenue Brand new market, ongoing support may become material and earning process may not end because BBean continues to provide support PS: Change in accounting policy:--choose the most suitable, only if the new method is more relevant. Midterm Q1: you feel uncomfortable deleting internal control assessment or client risk assessment, prepared the email to your manager to outlining why these
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