Zoom Snowboards Incorporated
Write
an audit planning memo addressed to the audit partner. Use the example on pages
1206-1207 as a guide in drafting your memo; however, you are not
required to complete all the sections listed in the example memo in the case.You
are required to include a discussion of the following:
1.
What the purpose of the memo is. Also, discuss who the key
users of the financial statements are and why the audited financial statements
would be important to them.
2.
A discussion on overall engagement risk. Is this a low,
medium or high risk engagement and why? Consider the factors listed on page
1206.
3.
Determine what the materiality for the audit should be. Explainhow
you arrived at this number (factors, benchmarks, percentages, etc..) and why
you used the inputs etc… to arrive at your final calculation.
4.
Determine what the tolerable misstatement should be. Explain how
you arrived at this number.
5.
Identify risks factors related to the entity, its
environment, and internal control. I
recommend looking at AU-C Section 315 for suggested risk factors (particularly
Appendix A-C) and reviewing the discussion in your textbook in Chapter 4. You
must come up with fourissues related to the entity and its environment
(Part I) and four issues related to internal control (Part II).
You may add up to a combined
total of 4 additional issues to your chart for an opportunity to earn extra
credit.If you do additional items for extra credit, then I will count your best four
in each category towards your grade and then assess the remaining extra line
items. They must be reasonable and well thought out in order to receive extra
credit.
a)
For each risk identified in part 5, link it to a specific
financial reporting risk.What you are doing here is explaining how the issue
you identified creates some risk for the financial statements to have problems.
You can use the same financial reporting risk more than once, but they must be
linked to a new company risk factor from the case.
b)
For each risk identified in part 5, identify if this risk
affects things at a financial statement level (pervasive – potentially affects
all accounts and assertions) or to a particular account and related assertion
or assertions. Do NOT answer that all risks affect everything at
the financial statement level. That is not correct.
This is a
private company so use the Auditing Standards Board (ASB) assertions. They are
listed for you at the end of the case document and also discussed in Chapter 5
of your book. You can use the same accounts and assertions more than once, but
they must be linked to a new company risk factor from the case.
Use the following format to address
the requirements in number 5. I have given you an example for each category below.You cannot use my example
as one of your items.
Make sure that you have explained
each item in your chart well enough so that someone reviewing the work knows
what you are talking about and does not have to refer to the case because your
explanations are too vague. Make sure that each of your required eight items
are different enough from each other; it is possible that one issue may
causing different financial reporting risks. However, do not do this unless you
have clearly explained how the issue is contributing to distinctly different
financial reporting risks that affect different accounts.
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Part 1- Issues related to
Entity and its Environment
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Issue (i.e. fact from the case)
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Financial Reporting Risk
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Accounts and Assertions
Potentially Misstated
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Zoom has introduced a new pricing model (allowing
partial refunds). There appears to be potential for a high number of returns.
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Zoom has no experience with estimating the potential
level of returns.
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Allowance for returns (Valuation)
Accounts receivable (Valuation)
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Part 2 – Issues related to
Internal Control
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Issue(i.e. fact from the case)
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Financial Reporting Risk
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Accounts and Assertions
Potentially Misstated
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The internal auditor is not that effective. This
person has no prior experience and is not independent of financial reporting
personnel (he reports to the CFO and not to the audit committee). He also is
not being made aware of key internal control issues (the potential fraud
issue in Montreal) and is not involved in performing internal control testing
at the corporate office.
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Lack of internal controls over the financial
reporting process could lead to incorrect and/or fraudulent financial
statements.
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All accounts and all assertions.
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6.
Make a conclusion on the risk of material misstatement at a
financial statement level (i.e. the financial statements as a whole). Is the
risk low, medium, or high and why?
7.
Make a conclusion on which accounts and assertions have a
high risk of material misstatement. No discussion is necessary; just list the
accounts and corresponding assertions.However, whatever accounts you indicate
are high risk should have been listed in your analysis in requirement 5. This
does not mean that all accounts mentioned in 5 should be considered high
risk.
Other Instructions
This
case is based on a Canadian company. Do not get concerned about that; it has no
bearing on your ability to be able to address the points above in your memo. I
am not asking you to analyze anything related to a specific IFRS treatment of
accounting issues.
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Group
Project 1 - _________________ (write your name so I
know that you have completed this part of the assignment)
You must rate each
of your team members individually. Write your team member’s first and last
name.
On a scale of 1 to 5, how would you rate
your team member’s contribution and efforts in completing the assignment.Do not
rate yourself. There are 10 points possible for the peer evaluation. If someone
receives a rating of “5” they will earn 10 points; if they receive a rating of
“4” they will earn 8 points, etc…
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1
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2
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4
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5
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Not
significant at all
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Not very
significant
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Somewhat significant
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Significant
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Very
significant
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name
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Team member
name
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Team member
name
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Team member
name
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Team member
name
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