The MGT 321 ACCOUNTING assignment must be done in groups of 2 OR 3 – and should not exceed 18 pages. (One and one-half spacing; 11 point; Times New Roman; 1 inch margins) [More info to follow]
MGT 321 ACCOUNTING ASSIGNMENT QUESTION ONE (30 marks)
Today is March 9,, 2018. You, Bea Calm, CPA, are employed by the Mississauga office of Anderson, Coopers, LLP (“AC”), Chartered Professional Accountants as an audit manager. AC is a medium sized accounting firm with twenty partners and a professional staff of ninety.
Richard Anderson is a senior partner. He says to you, “Bea, I have been asked by CPA Ontario to be a guest speaker at a training course for CPA students who are pursuing their accounting designations in the audit stream. I have been asked to hold do a short seminar (less than an hour) on auditing Property Plant & Equipment – considerations and audit procedures. I want to make my presentation realistic and so will provide students with a set of the financial statements of MEDICAL FACILITIES CORPORATION (attached) – and then I will take them through what I as a partner had consider to do gather evidence and comply with CAS when auditing these accounts. I want them to understand the planning related work and the types of procedures we do and how we set the procedures. What I am asking you for is very focused and specific. You are not planning the entire audit.”
MGT 321 ACCOUNTING ASSIGNMENT QUESTION TWO (20 percent)
Stealth Radio Corp. (“SRC”) builds two-way radios that are primarily used by police and other first responders. Its manufacturing plant in Milton is also a warehouse. When parts are received, the receiver compares the type of goods and quantity to a copy of the purchase order available online. If the quantity received differs from the quantity on the purchase order, the receiver adjusts the purchase order amount online. When the goods are checked by the receiver, she sends an e-mail to the accounting department recording the type of goods, quantity, and- date received. The accounting department uses the e-mail to create a receiver’s report, and the purchase order is then printed and filed in the accounting department. The online system allows the company to reduce paper, as a hard copy is not needed until the goods are actually received. The company’s order-entry and tracking system automatically assigns the next number in a series to the purchase order just before printing.
Inventory is physically moved to the warehousing area, which is located in a locked-up area at the end of the plant. There is a stores department for raw materials and factory supplies in a separate area for supplies such as gloves, wire, and adhesives, all of which are used in significant quantities on a regular basis. When an assembly line worker requires supplies, the supervisor fills out a serially pre- numbered requisition card, signs it, and gives it to the worker, who then takes it to the stores department to obtain the needed items. Each supervisor has a stock of requisition cards. When the supplier’s invoice is received by the purchasing department, one of the purchasing department staff sends an e-mail to the accounting department, noting the invoice amount, supplier name, date of shipment, and type of goods. The accounting department then matches these items to the purchase order and receiving report, and prepares a cheque for the controller to sign.
The controller does not sign the cheque until she also receives an e-mail from the accounting staff indicating that the purchase order, receiving report, and invoice have been matched.
The assignment should not be discussed with others beyond your group, including other members of the class. Please write on the front the front page, signed by all group
members, “We have completed this assignment on our own and have not discussed it with any other individual or used any other aids beyond the course and readily available research materials. We acknowledge compliance with the academic requirements (e.g. citation of sources) of the University of Toronto.”
SCHNEIDER 1 OF 3
SRC has always manufactured analog technology based radios. In recent years, several police forces have been switching to digital technology which allows for encryption. Much of the digital technology is patent protected by competitors that have developed this technology.
Christopher Cross is the new assurance partner on the SRC audit. Christopher has asked you, Bea Calm to prepare a memorandum to him that sets out and explains several internal controls strengths and weaknesses in the SRC inventory. He is also interested in what type of business risks that you can identify and whether they may impact the audit and how. Christopher at this stage is trying to get a better preliminary understanding of SRC.
MGT 321 ACCOUNTING ASSIGNMENT QUESTION THREE (50 percent)
You, Bea Calm, CPA, are an audit manager in the assurance group at the accounting firm, Bindra & Wang LLP, Chartered Professional Accountants (BW). You were involved in the following fact pattern and the audit partner has asked for your response. BW follows all CAS as covered in MGT 321 and have implemented all changes to Handbook, including early adoption of reporting standards.
Mississauga Waste Disposal Inc. (MWD) is a large, diversified Canadian-controlled private company with several Canadian subsidiaries, operating mainly in the waste management and disposal industry. MWD was incorporated in 1975 and has grown to become one of the top four waste management firms in Ontario. The business was started by the Gates family. Currently two senior officer positions (President and VP Finance) at MWD are held by second generation Gates family members. No other Gates family members are actively involved in the management of the company. The shares are owned by several Gates family members, Gates family trusts, and a limited number of friends. In 2015, the Gates family was approached by Brookfield Asset Management Inc., a private equity firm who wished to purchase all of the shares and acquire MWD. Unfortunately, a deal could not be worked out with Brookfield. Members of the Gates family decided to sell the company to a third party private equity firm within the next two or three years to realize the value of their shareholdings. They are actively seeking a buyer. MWD has an August 31 year end and follows ASPE.
Up until the 2016 fiscal year end, MWD had been audited by KPMG LLP chartered professional accountants. As a result of a dispute with KPMG LLP, over fees and some accounting matters, in early 2017, the company decided to seek a new auditor. MWD contacted three medium sized accounting firms, and after receiving proposals from each, decided to appoint Hines & Hines, Chartered Professional Accountants (HH), a regional firm based in Oakville, Ontario.
It is now October 18, 2017. Three days ago HH suddenly resigned from the audit engagement because of a conflict of interest (Code of Professional Conduct (CPC) 210, as well as an independence threat (CPC 204) which was now identified for which an adequate safeguard could not be implemented. HH was about 60% complete in terms of their year end audit work. Melissa Wang, a senior tax partner at BW had always been a trusted personal tax advisor to some members of the Gates family that are not involved with MWD. Through that connection, MWD offered the audit engagement to BW. Melissa, after speaking with the HH partner in charge of the audit, accepted the 2017 audit engagement on condition that HH provide all the audit documentation that they have prepared to date. The HH partner stated that there was no reason he was aware of why BW should not accept the engagement, and the documentation condition was accepted. BW was formally appointed auditors by the shareholders. Melissa did not obtain a new engagement letter, but rather decided to rely on the pre-acceptance work completed by HH and on the engagement letter they received. Based on a meeting with the MWD board of directors, materiality has been set by BW at $6.5 million based on looking at income and balance sheet trends. Performance materiality was set at the same levels given the low going concern risk and the longevity of the entity. This determination of performance material based on these factors is the standard practice at BW.
MGT 321 ACCOUNTING ASSIGNMENT
As noted, you, Bea Calm, work for BW. HH’s audit files (working papers) have now been sent to your office as a PDF document and you and your staff have prepared the following notes:
SCHNEIDER 2 OF 3
for nearly two months, but the sales tax audit is still not complete. The government sales tax auditors are disputing the sales tax exemption claimed by MWD from the 8% tax on purchases of certain waste processing equipment over the last four years. About 20% of total purchases of $451 million fell into this category during the four-year audit period according to MWD.
Melissa Wang has requested a memo from you Bea Calm that deals with the significant audit and accounting issues. In particular, the partner has asked that when discussing an accounting issue that you incorporate procedures as to how they would be addressed on the audit. The partner has also asked that discuss what the impact would be on the audit report, should the issue(s) not be resolved.
MGT 321 ACCOUNTING ASSIGNMENT