As an audit manager for Gaston & Gaston LLP you are currently trying to complete three separate audit engagements in order to provide an audit opinion on each set of financial statements. In connection with your examination of the financial statements of each company for the year ended December 31, 2019, your review of subsequent events noted the following items (Assume all items are material) :
As an audit manager for Gaston & Gaston LLP you are currently
trying to complete three separate audit engagements in order to provide an audit opinion on each set of financial statements. In connection with your examination of the financial statements of each company for the year ended December 31, 2019, your review of subsequent events noted the following items (Assume all items are material) :
Audit A: Harvest Corporation Engagement
On January 17, 2020, it was discovered that a shipment of goods manufactured by Harvest Corporation was in transit to Alberta on December 31, 2019. At year end, the shipment had been recorded on the original source document as FOB shipping point and a sale was recorded in the amount of $100,000. It was subsequently determined by the co-op student on the engagement team that the terms of the sale were FOB destination. (to be recorded as a sale when received by the customer).
Audit B: Big Top Corporation (BTC)
On February 10, 2020, BTC shares were trading on the TSX exchange a $50/share. On the same day, the company announced that a new share issuance would be offered to the public. Shares could be purchased for $50 and the company authorized the issuance of 100,000 shares in an attempt to raise $5,000,000 in capital.
Audit C: Energizer Company
On January 22, 2020, as a result of reduced sales for the Energizer Company, production was reduced by 25% for all day shifts and 50% for all evening shifts. During this time many staff were laid off. On February 3, 2020 all the remaining shift employees went on strike. To date the strike has been unsettled.
Required:
For each of the independent situations above, provide an audit procedure which would have brought the item to your attention. Discuss if the various items should or should not be disclosed and provide reasons for your recommendation. (Note for each situation 1 mark for an audit procedure and 1 mark for noting whether disclosure should or should not be made and 1 mark for explanation totals of 9 marks)
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