Reference no: EM13920890

Note: For multiple-choice questions, select the best answer. Answer each item by giving the number of your choice. Incorrect answers will be marked as zero. Multiple-choice questions must be completed in your Assignment Submission section. This portion of the assignment will be automatically graded. Do not include your answers in your Word document as they will not be graded.

a. Which of the following statements about the similarities between audit and review engagements is true?
1. Under both engagements, there is no need to corroborate management's assertions.
2. Both rely on plausibility rather than assurance.
3. Neither requires an assessment of the client's control system.
4. Both require assessment where GAAP is the criteria.

b. Which of the following descriptions does not represent an attest assurance engagement?
1. A report on the effectiveness of an entity's system of internal controls over financial reporting
2. A report on a client's compliance with their rental contract
3. A report confirming the accountant's preparation of an organization's financial statements
4. A report on the examination of control procedures at a payroll processing organization

c. Which of the following statements would not be included in a report for a review of interim financial statements?
1. A statement of the procedures followed by the auditor
2. A statement of the restrictions on the use of the report
3. A statement of the scope of the engagement
4. A statement of the auditor's responsibility for the financial statements

d. Which of the following statements best describes a public accountant who is engaged to perform a compilation engagement?
1. The public accountant attempts to check the completeness of the client's information.
2. The public accountant verifies the accuracy of the client's information.
3. The public accountant is completely independent of the client.
4. The public accountant has proficiency in accounting.

e. Zheng is one of three partners in a local CGA firm. Zheng's firm has received a request from his sister to prepare a set of financial statements for her new business. Which of the following statements concerning this set of financial statements, and its related communication, is not true?
1. This partner should refuse such an engagement.
2. There should be a report entitled "Notice to Reader."
3. None of the communications should express any type of opinion or assurance.
4. Each page should be marked "Unaudited - see Notice to Reader."

f. Which of the following procedures would the public accountant normally perform during the review of a private company's financial statements?
1. Test sales cut-off.
2. Observe the client's inventory count.
3. Obtain a bank confirmation from the company's banker.
4. Request a letter of representation from management.

g. Which of the following statements about the framework for applying specified auditing procedures to financial information other than financial statements is true?
1. The end report specifies the factual results of the procedures applied.
2. The auditor is responsible for both the sufficiency and appropriateness of the specified procedures.
3. The auditor must clearly state that this is an assurance engagement.
4. The auditor provides an overall conclusion on the procedures performed.

h. AuG-6 provides guidance when future-oriented financial information is included in a prospectus and must have an auditor's report attached. Which of the following is not expressed as part of the auditor's report?
1. Management's assumptions are suitably supported and consistent with the plans of the entity.
2. The auditor agrees with management's assertion that the forecast will be achieved.
3. The forecast complies with GAAP in regard to its presentation and disclosure.
4. The forecast reflects accurately the assumptions made in preparing the forecast.
Source: Companion website for Auditing and Assurance Services, Second Canadian Edition, © 2007, McGraw-Hill Higher Education. Chapter 20, pre-test question 6, https://highered.mcgraw-hill.com/sites/0070919151/student_view0/chapter20/multiple_choice_quiz.html (accessed July 13, 2007). Adapted with permission.

i. Which of the following working papers would most likely be found in a file associated with a review engagement?
1. Documentation of knowledge of the client's business
2. Confirmations of bank balances
3. Results of test counts of inventory
4. Documentation of tests of controls over disbursements

j. Under what circumstances is a consent letter issued in association with a prospectus?
1. The previous auditor of the client agrees to allow prior year financial statements to be included in the prospectus.
2. The auditor has reviewed the entire prospectus and believes it is not misleading.
3. The auditor states the opinion that all the information contained in the prospectus is fairly presented in accordance with GAAP.
4. A review of any unaudited interim financial statements is completed and the auditor can provide negative assurance.

Question 2
In June of 2014 you were hired as a junior manager at the firm of Roberts, Zak, and Delisle. Kieran Roberts, one of the firm's partners, has just assigned you and your new staff accountant, Betty, to the Chase Taxi compilation assignment. Chase Taxi is a family-run partnership that has been in operation for seven years. In April 2014, Lily Brown, an audit supervisor at your firm, left to join Chase

Taxi as their controller.

Upon opening this client's file, you notice a draft engagement letter prepared by Betty to the CEO of Chase Taxi, Maria Brighton. Your first task is to review the preliminary draft and make whatever changes are required.
Exhibit 1: Draft engagement letter
January 29, 2015
Chase Taxi
1087 Houghton Bay Road
New Beach, Alberta
T3V 6E9

Dear Maria,

The purpose of this letter is to outline the nature of my involvement with the monthly financial statements of Chase for the year ending December 31. As agreed, I will compile financial statements in accordance with the standards applicable to assurance engagements for each of the months January to December, 2014, from information provided by you. I will audit, review, and attempt to verify the accuracy or completeness of such information. Also, as part of the compilation, I will assess and comment on the overall plausibility of the financial statements. Unless unanticipated difficulties are encountered, my communication will substantially be in the following form:
Dear Shareholders,
On the basis of information provided by management, we have compiled the balance sheet of Chase Taxi Corporation as at December 31, 2014 and the statements of income, retained earnings, and cash flows for the year then ended. The above financial statements we have determined to be in compliance with GAAP except for note 6. We have not performed an audit or a review engagement in respect of these financial statements and, accordingly, I express no assurance thereon.
Since I am accepting this engagement as your auditor, I request that you record this as an auditing engagement in the minutes of your partners' meetings. My services will not result in the expression of an auditor's opinion or any other form of assurance on the financial statements, nor the fulfilling of any statutory or other audit requirement. You may wish to obtain legal advice concerning statutory (or contractual) audit requirements.

It is understood and agreed that
(a)
you will provide me with accurate and complete information necessary to compile such statements;
(b)
the responsibility for the accuracy and completeness of the representations in the financial statements remains with us;
(c)
each page of the financial statements will be inconspicuously marked as being not audited;
(d)
you will not attach my notice to reader when distributing the financial statements to third parties;
(e)
the financial statements may either lack disclosure required by, or otherwise not be in accordance with, generally accepted accounting principles, and may not be appropriate for general purpose use;
(f)
uninformed readers could be misled unless they are aware of the possible limitations of the statements and my very limited involvement.
This engagement can be relied on to prevent or detect error and fraud and other irregularities. I wish to emphasize that responsibility for the prevention and detection of error and fraud and other irregularities must remain with management. Furthermore, the controller of Chase Taxi was an employee of our audit firm until April 2014.
The arrangements outlined in this letter will continue in effect from year to year unless changed by us.
If you have any questions about the contents of this letter, please raise them with me. If the services outlined are in accordance with your requirements and if the above terms are acceptable to you, please sign the copy of this letter in the space provided and return it to me. I appreciate the opportunity of continuing to be of service to your company.

Yours very truly,
Maria Brighton, CEO Date
Chase Taxi Corporation
Required
Prepare the revised engagement letter. (Note: Only the final revised letter is required. You must revise the engagement letter in Exhibit 1. Do not use a template from any other sources.)
You will be awarded 1 to 2 marks for each error identified and corrected in the draft and 2 marks for presentation.
Question 3 (18 marks)
Four years ago, the not-for-profit organization Caledonia Get-Together Association (CGTA) was formed in an effort to create a united social group out of several separate regional clubs in the vicinity of the city of Arnprior, located in central Canada. The purpose of the association was to combine resources to meet the recreational, cultural, and social needs of its collective members. CGTA was formed through the amalgamation of 10 clubs, including Russian, Italian, Portuguese, Greek, German, and other ethnic clubs. CGTA's board of governors has spent the past four years planning and preparing for its operation. The board expects the association's community centre to be fully completed next year. Altogether, the association's facilities will include a multi-purpose building to house banquets, meetings, and arts activities; hiking trails; indoor/outdoor tennis facilities; bicycle trails; baseball diamonds; an indoor/outdoor pool; and a soccer field.

The multi-purpose building is 75% complete, and CGTA's treasurer has stated that it is "approximately within budget" of its planned $3.5 million cost. The two hectares of land on which the facility is built were provided by the provincial government by way of a five-year lease at $1 a year. A private donor contributed the adjacent 24 hectares of land to the association. Previously, this land had been leased to a farmer for $54,000 a year. The 26 hectares will be used for the previously mentioned activities, incurring estimated annual operating costs of $2 million. Estimated additional operating and administrative costs are $900,000.
Graham Laurie, the newly elected president of the association, recognizes the importance of starting out on a sound footing. He has approached your firm to prepare a report providing recommendations on accounting, finance, and internal control issues. As part of the report, he has also asked you to identify the merits of an audit for CGTA and potential problems that might exist in preparation for the next meeting of the board of governors.

Required

1. What factors should you consider before agreeing to prepare the report? (3 marks)
2. Write the report. Make sure you discuss the merits of an audit for CGTA and any potential issues that will need to be addressed.
You will be awarded a maximum of 3 marks for discussing the merits of an audit and 3 marks for each issue, to a maximum of 12 marks (4 issues).
Source: William Messier, Jr. et al., Auditing & Assurance Services: A Systematic Approach, Third Canadian edition, pages 28-29, question 1-25. © 2008 McGraw-Hill Ryerson. Adapted and expanded with permission.

Question 4

Your firm is the auditor of Pine Hill Farms, a company located in Petersfield, Manitoba. As part of your audit of Pine Hill Farms, the management of Pine Hill has asked you to issue an opinion with respect to Pine Hill's compliance under the terms of a chattel mortgage issued by J.L. Lockwood Corp. Much of the equipment Lockwood sells, including that supplied to Pine Hill, is sold on a secured contract basis. J.L. Lockwood is not an audit client of yours. Lockwood is evaluating whether it should sell another $625,000 of equipment to Pine Hill Farms.

You have been asked to send Pine Hill Farms a report under Section 5815 concerning the following:

1. The current ratio has exceeded 2.0 in each quarter of the unaudited statements prepared by management and in the annual audited statements.
2. Total owners' equity is more than $750,000.
3. The company has not violated any of the Elk Game Production Manitoba regulations.
4. Management is competent and has made reasonable business decisions in the past three years.
5. Management owns an option to buy the pasture adjacent to its present property.
Required
a. Define the purpose of a special report on compliance with agreements, statutes, or regulations (Section 5815).
b. Is it necessary to conduct an audit of a company before issuing such a special report?
c. Would you include all of the five items listed in your report? If not, explain why.

Question 5
Pure Energy Kick Start, a health food store in Mustafa, Ontario, is one of your firm's oldest audit clients. The founder, Lucille Bond, has just announced her retirement, and her daughter Katrina will be taking over the CEO position starting January 6, 2014.
Reggie Smart, the lead partner on the Pure Energy account, has just returned from a lunch meeting with Katrina and Lucille. At that meeting, Katrina announced that Pure Energy will be moving to the Kensington Mall as of June 1, 2014. Katrina is excited, as Pure Energy has received preliminary approval from the mall's owners pending an auditor's report confirming the company's debts. She has provided Reggie with a copy of the preliminary agreement, including a list of debt confirmation procedures to be completed by the firm's auditors.

As Reggie will be out of town in Montreal next week, Katrina has asked you to write a letter for her regarding her engagement request. Reggie has indicated that Katrina may be under the impression that there will not be an extra fee for this auditor's report confirming Pure Energy 's debts. Reggie would like you to address this perception and discuss the terms of performing this type of engagement as well as the characteristics of the report type to be issued.
Required

Write the letter for Katrina regarding this proposed engagement. Include the terms of the services to be provided and the characteristics of the report to be issued. You must also address why there will be an additional fee for this service.

Question 6
Mountain View Church has been located on a central downtown street in Saskatoon for over 50 years. Originally, the church building constructed by volunteers was in the middle of farmland, but it is now surrounded by houses and apartment buildings. The church has an active parish community that engages in fundraising in the neighbourhood, assisting the homeless, and providing drop-in housing during the winter months. Francis, the minister, and the church board have decided it is time to have a review engagement completed for the church finances and have approached your firm about performing this review engagement.

The church organizes its finances based on five funds: operating, endowment, youth, homeless, and music scholarship. Any transfers from the endowment fund to the operating fund must be approved by the board. The church has about $1.8 million in cash and marketable securities in the bank. The church building is valued at zero on the balance sheet. The church also owns a large house. Francis lives in a section, and the rest of the property is used for storage, as office space for three permanent church staff, and as a meeting space.

Required
a. Fully discuss three issues that you should address before accepting this engagement .
b. Outline in detail the process for conducting the review engagement.
c. What six questions, specific to the church, would you ask to address plausibility of the church's financial statements?