JamesMorrisonDeal

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Western University *

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RSM7201

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Accounting

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Jul 3, 2024

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docx

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To: Luke Hardy and Cal Adarman From: PA&E, CPA Re: Audit planning memo with key procedures on high-risk areas Required:  CCPC – Y/E June 30, 2017  ASPE Audit – First year audit so risk is high  Audit planning memo  Is IFRS a more appropriate standard for their company – explain the factors that should be considered?  Tax – Accounting – Finance – Calculate the amount they have to return Role: Provide client with solutions regarding internal controls and whether they should make the change to IFRS Users:  Luke Hardy and Cal Adarman Accounting: Allowance for doubtful accounts – Luke and Cal should have an allowance for doubtful accounts section as it has been shown that not all businesses are able to handle the deals sold by Get-a-Deal. They also seem to be getting taken advantage of as they are promoting deals with restaurants and then the restaurant is shutting down and using the money that Get-a-Deal gave them to do renovations on their restaurant or in one case take the money than a week later declare bankruptcy. Ways to help this issue:  Create an AFDA

 Implement better controls as to when you send the restaurant their portion of revenue earned – for example give the restaurant their 75% after the customer has used the coupon their and if any go unused then the rest will be given to them when the coupons have expired. IFRS vs ASPE  Get-a-Deal should adopt IFRS as they are thinking of expanding to the U.S and across Europe, many large corporations use IFRS, and they may have an easier time understanding Get-a-Deals financial statements if they ever needed them to help expand. Extra 87,000 in refunds: We are now in a different accounting period, but these refunds come from before the Cut-off date – they should be reviewed and approved ones should be paid out. Conclusion – What is listed above and make sure that you are not paying restaurants until after coupon holder is gone and used coupon, this way there will be less risk for Get-a-Deal as the restaurant will have to prove that the customer was there. This will stop restaurants from taking the money and claiming an issue before the coupons can be redeemed causing Get-a-Deal to refund customers from out of pocket. IFRS should be implemented for easier expansion into different countries who are using IFRS. Gross vs Net ASPE 3400 Issue: They are an agent and are sending most of the revenue away that they have recorded – should just record their 25% commission Analysis: Paragraph 24 – A) the enterprise has the primary responsibility for providing the goods or services to the customer or for fulfilling the order (for example, by being responsible for the acceptability of the products or services ordered or purchased by the customer) – the deal is not provided by Deal but the vendor – Criteria is not met B) the enterprise has inventory risk before or after the customer order, during shipping or on return; - Not met – no inventory risk C) the enterprise has latitude in establishing prices, either directly or indirectly (for example, by providing additional goods or services); - Not met D) the enterprise bears the customer's credit risk for the amount receivable from the customer. – Not met Deal earns its revenue by providing a service by acting as an agent therefore they should only record the net amount of revenue

ASPE 3400 Revenue is recognized after the deal sale is finalized that enough coupons have been sold for the restaurant to approve that enough coupons have been bought .04 Revenue from sales and service transactions shall be recognized when the requirements as to performance set out in paragraphs 3400.05 -.06 are satisfied, provided that at the time of performance ultimate collection is reasonably assured. .05 In a transaction involving the sale of goods, performance shall be regarded as having been achieved when the following conditions have been fulfilled: (a) the seller of the goods has transferred to the buyer the significant risks and rewards of ownership, in that all significant acts have been completed and the seller retains no continuing managerial involvement in, or effective control of, the goods transferred to a degree usually associated with ownership; - Met once the deal is confirmed (b) reasonable assurance exists regarding the measurement of the consideration that will be derived from the sale of goods, and the extent to which goods may be returned. – Met once the restaurant assures them that enough coupons have been sold Recommendation: Get-a-Deal provides a service – recognize the 25% commission as earned as performance has been met Refunds: Issue: How to account for the refunds that the customers are requesting Analysis – Deal has been giving refunds to their customers on behalf of the vendors ASPE 1000.30 Recommendation: an accrual should be made for the extra 87,000 Receivable from vendors ASPE 1000.25 Audit: Risk:  Audit risk is high as it is a first-year audit  Weak controls – giving income to business who have yet to see the customers in their restaurants  Rapidly growing company - sales have more than doubled each month for the past year  Undergoing litigations – 250,000k claim Conclusion – Risk is high Approach:  Given this is the first year of operations,) we are required to obtain an understanding of the design of the controls - including documenting the

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processes, assessing design of controls and concluding on design of controls, and whether we are going to test controls  Weak control environment - There are many control weaknesses throughout the company (such as giving away revenue before it is earned), and therefore controls are determined weak, thus we will take a substantive approach.  Opening balances → We will need to conduct rollback procedures. Given that the audit starts after year end, we may will not be able to get an understanding of the balance for inventory. Hence, we may need to qualify, and therefore need to understand from the users whether they will accept this.  Based on the weak controls we should take a substantive approach Materiality:  Due to the unaudited nature of the financial statements and we don’t know for certain whether the opening balances are accurate because this is a first- year audit I am going to base materiality off of equity in the business  827,131 in equity since this is high risk, I will take the higher end at 5% so materiality is equal to $41,356.55  Performance materiality is 41,356.55 *.8 = 33,085.24  Specific materiality is 33,085.24*.5 = 16,542.62 Investments:  Should check with the bank what the valuation of the investments are Liabilities:  Review invoices and check for completeness against supporting documentation by Get-a-Deal  Contingent liability – CAS 501, probable that Get-a-Deal will be charged some amount Conclusion – Implement procedures regarding the payment to restaurants until after the customer has used the coupon. If a customer doesn’t use coupon, then restaurant will receive their 75% after the deal has ended. Should test the accuracy of the transactions. Website: An additional server should be bought to stop the crashing as well as the fact that the owners are looking to expand and will certainly need at least one new server to handle the extra consumer load. Website Costs: Costs are capitalized when the main business needs them to every year to generate revenue, the server hardware should be the only cost that should be capitalized as

every other cost was just needed to get the business up a running and is not currently involved in generating revenue. Dr – Expenses 166,000 Cr – Website Costs 166,000 IAS 38 / ASPE 3064 – Intangible Assets IAS 38.12 then .21 then .57 Website costs fall under intangibles ASPE 3064.21 then .41 in .41 it has to meet all of the criteria from a to f