Q ,4 I A Q? , , el c’Y 52 CHAPrER 4 Si V • SPEEDY LOANS LTD. • —I ,
Cindy Ng recently received her CA designation and has accepted a financial statement audit en gagement for Speedy Loans Ltd. Speedy, 100% owned by Sam Speed, specializes in lending money on a short term basis to people who are in quick need of cash. As these loans are usually high risk in nature, interest rates are substantially higher than what the banks are offering. Sant was intrigued by a flyer he recently got in the mail which advertised audit services at a flat fee. Sam quickly called the number on the flyer and spoke to Cindy. Sam explained to Cindy that while he had no real need for an audit, the price was right and lie liked the idea of giving her an opportunity to gain some experience. Cindy in turn was excited to get the engagement as it was her very first client alter having been let go from the big four firm she had been working for. Being un employed was not in her plan. Unfortunately she was heavily in debt, still paying off student loans and her credit card bill for the trip to Europe she had taken after she graduated. List month, Cindy had no choice but to declare personal bankruptcy and start with a clean slate. Doing audit engagements on her own with no bosses and tile reviews to worry about was go ing to be the start of a new beginning and she couldn’t believe her luck in landing her first client so quickly While she didn’t know Sam, he seemed like a great guy and she appreciated him giving her a chance at proving herself. She quickly drafted up an engagement letter and started planning the audit. Cindy received the financial statement from Speedy’s accountant and planned her audit carefully. She was apprehensive at first, given that she had never done the planning part of the audit engagement before as that was always done fur her in her previous audits at her old firm. She was glad that she had photocopied an audit file before she left the old firm so she had something to use as a guideline. She set materiality at $100,000, based on a discussion with Sam about what he thought. After all, what better person than the owner himself to know a big number when he saw it? She learned from the accountant that the financial statements were prepared based on ASPE. During her testing she discovered the following I. A piece of factory equipment with a net book value of $250,000 had been sold during the year but was still listed on Speedy’s balance sheet. Sam assured her that this was an oversight and they agreed that the balance sheet would be changed to remove the asset that had been sold. 2. There was a building on the books that was valued on the balance sheet at its estimated fair value of S1 million. When Cindy questioned the accountant, he said that Sam liked the idea of adjusting this to fair value as there was a good prospect of selling the property shortly and they wanted it to look good on the books. 3. Cindy also found a $25,000 payment for a credit card bill for a family vacation to the Ca ribbean, which had been expensed as advertising. She easily convinced the accountant to re classify this as “training” expenses. 4. She also found several smaller amounts for personal items, which had been included as corporate expenses. She was relieved that none of these were over the $100,000 materiality threshold that she had set and agreed to accept these as “immaterial”. Cindy knew that she should probably insist on a valuation of the property, given its significant increase over cost, but she decided against it, not wanting to rock the boat. She accepted the valu ation and issued an unqualified opinion, as no third party that she knew of would be using the
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Speedy Loan L….jpeg
Speedy Loan L….jpeg