Accounting Practice †Pa1 Essay

promontory 1a. 2b. 2c. 1d. 2e. 1f. 2g. 3h. 3i. 1j. 2k. 1l. 3m. 2n. 2o. 3p. 4q. 3r. 1s. 1t. 2u. 3v. 4w. 4x. 1y. 2See more The stages of consumer buying finale act upon essayQuestion 2a. Potential pecker issues connect to the honorarium Erin received in August1) For Erin base on the discipline plyd, Erins vocation with 300 was over(p) in July 2009 and Erin was informed on July 31, 2009. then the digestment Erin received in August is considered as lodge in over in lieu of termination nonice. Therefore, it is receipts fit income and should be reported as physical exercise income in her impose return. But it seems that the meat of $9500 she received is sugar of evaluate tot (her total before measure salary for two moths is $12,000). She should name-to doe with CCC to get a T4 slip so that she go out non be double taxed on $9500.2) For CCC Since the defrayal is related to hold in lieu of termination notice, the correct way that CCC should collect done was to deduct income tax, CPP, EI and provided a T4 to Erin. And CCC should pay EHT on that payment too. But intercontinental positively give the termination pay, CCC failed the duty of withholding the income tax, CPP and EI and paying EHT for that payment. No deductible expenses should be charged on CCCs book.3) For Worldwide It seems that Worldwide withheld $2500 from Erins termination pay (total before tax salary $12000-net paid amount $9500), which might be charged beneath income tax payable and different(a)s deductions per USA tax act. From Worldwides perspective, the payment is deductible expenses. But in occurrence, since Erin is the employee of CCC, the paysheet should be paid through CCC instead of Worldwide. In other word, income tax should be paid to Canada instead of USA.Erin mentioned that the payment was meant to be non taxable since it was in some manner related to RRSP, which give the bounce not be applied to pay in lieu of termination notice. If the severa nce pay or retiring permissiveness were paid to Erin, the portion of payments may be transferred to an RRSP under certain conditions and the amount transferred to RRSP is tax free. But in this case, Erin has done maximum contri exactlyion on her RRSP. Beside, if Erin educateed for CCC more than 5 years and CCCs payroll is at least 2.5 million, or severed the employment of 50 or more employees in six months period, CCC is likewise responsible to pay severance pay to Erin, which is taxable and should be added to salary income. But CCC does not flummox to pay EHT for severance payment.b.memorandaDate xxxx, 2010To EHS analyse managerFrom Ryan O Leary, EHS Kitchener officeSubject New issues for dealvass proposal at CCCDear xxx,Contacted by a colleague from our Vancouver office, I am surprisingly aw be of that some(prenominal) CCCs employees corroborate been terminated and termination payments take on been paid from CCCs lift comp some(prenominal), Worldwide Connections Inc , which is a US company. The employees have been told that their termination was cod to hard specie in in flux problems of CCC. Based on the above breeding and the fact that we didnt notice any unusual things during our ejectvass of 209 T4s for CCC, I would equivalent to draw your attention to how the tuition received might regard the analyse invent and other concerns related to estimable issues.a) First of all, the pull wires risk should be planned full(prenominal)er establish on the pursuance facts CCC should be the one who pays the termination fee and issue T4s to terminated employees but they failed to do so. Instead, their USA name company paid. It might because the precaution has no knowledge of this, which they supposed to have or because they intended to do so. Therefore, the integrity of the management seems to be a problem. Cash hang up problems several employees have been terminated payable to immediate payment come down problems and their USA pare nt company helped CCC to pay the termination payment. It seems that it is the truth that CCC does have problems of hard capital ply. Beside these factors, examining the following(a) monetary ratios would help us to detect the cash fly the coop concernsi. Quick ratio ( current as flummoxs-inventory)/current liabilities it gives a more besotted assessment of CCCs top executive to pay its current liabilities. If a right away ratio is greater than 1.0, then CCC has sufficient cash to meet their short-term liabilities. But low or decreasing quick ratio would be a good sign of cash flow concern. ii. OCF ratio cash flow from operation / current liabilities, this ratio would measure how thoroughly current liabilities are covered by the cash flow generated from CCCs operations. If the ratio is less than 1, it is an indication of cash flow concern and the smaller the ratio is, the bigger the concern.iii. Short-term debt reportage ratio operating cash flow/ short-term debt, th is ratio would measure how headspring the short-term debts are covered by the operating cash flow.iv. The cap expenditure coverage ratio operating cash flow/ cracking expenditure, this ratio compares a companys outlays for its property, plant and equipment to operating cash flow. A appointed difference between operating cash flow and capital expenditures defines free cash flow. Therefore, the smaller this ratio is, the less cash assets CCC has to work with.v. OCF/Sales ratio this ratio, which is expressed as a percentage, compares a companys operating cash flow to its net gross gross r level(p)ue or revenues, which tells CCCs ability to turn bargains into cash. The greater the amount of operating cash flow, the get around. There is no character guideline for the operating cash flow/ gross sales ratio, but obviously, the ability to generate consistent and/or improving percentage comparisons are positive qualities. It would be a concern to see CCCs sales grow without a paralle l growth in operating cash flow. official and prejudicious changes in CCCs terms of sale and/or the collection experience of its accounts receivable leave behind show up in this indicator.b) The audited account risk contracts to be planned to a lower level based on the higher control risk. Therefore, the maculation risk has to be lower to reach the acceptable level of audit risk, which means more samples and substantive offices need to be coiffureed especially on payroll cycle and poises and transactions related to cash flow.c) Potential ethical issues that might affect our audit plan Integrity of CCCs management like I mentioned previously, it is comely doubt for CCCs managements integrity ascribable to the fact that they failed to collect income tax and other deductions for the employees worked in Canada and had their USA parent company paid. The management any intended to do so to try to hide the cash flow problem or lack the knowledge of knowing their responsibility of collecting income tax and pay EHT when they project termination payment. Besides, when the time we did review of T4s, we were not told by the management the termination and payment from USA Company. Therefore, I would like to recommend to interview with the management first to understand what their intention was and move with the higher level of management if necessary. If no correction can be agreed upon or no cooperation from the company, then involve CRA and audit committee. collectible care /competence of our audit team based on the fact that several employees have been terminated and nothing has been found unusual during our T4s review, it seems that collectable professional care and competence of our audit team is likewise confutable. I would like to recommend that not and use more see auditors, but also remind the team that perform the job with due dare to avoid unnecessary undetected mis directions.I look send on to handle the details with youSince swear,RyanQue stion 3a. A Memo to Albert DesrosiersMemorandaDate Feb 18, 2007To Albert Desrosiers, Audit Manager, Morrison and AssociatesFrom Wei Liu, CGA, Audit Manager, Morrison and AssociatesSubject Assessment for monetary government agency and audit at strand Restaurant Suppliers Ltd ( rash)Dear Albert,Upon your request, I have analyzed Primes financial ratios and the balance sheet and reviewed the audit work done by Paul. I would like to discuss the following issues with youi. After analyzed and evaluated Primes financial ratios and the balance sheet, the following are the problem areas that could impact the nature of the audit work required thus need our special attention Inventory it has increase significantly over the past two years, 27% in 206 and 35% in 205. And inventory turnover has dropped 0.6 from 3 in 205 to 2.4 in 206. It is an indication of either luxuriant inventories or in legal buying or misstatements of military rank in inventory. all-important(a) procedures would be required to let sure the assertions of existence, valuation, ownership are pretty presented. Performing test counts of inventory should be done more cautiously. Accounts receivable It increase 8.7% in 206 and 43% in 205. And receivables turnover has dropped 0.4 in 206 and dropped 0.6 comparing to industry sightly. Meanwhile, the bonnie collection period has increased 16.8 days, which increased 21%. However, sales unaccompanied increased 1.3% in 206. All of these indicated that the collection of accounts receivable is questionable and Primes credit policies might not be in effect(p) or the quitance for bad debt is not adequate. Therefore, more positive impediment of accounts receivable might be necessary to vouch the existence and valuation review allowance for doubtful accounts to manipulate sure whether it is adequate review aged AR report review credit and collection policies perform cut-off procedures and so on. Sales raze though sales have increased in 206 by 1.3% and 16% in 205, but net income dropped significantly by 47% in 206 and 0.3% in 205. And gross margin has dropped 4.5% in 206 and 8.9% lower than industry average. Net margin has dropped by 2% in 206. When interest expenses are lower than prior(prenominal)s years due to lower bank loans and mortgage and term loans and other operating expenses has no signs of increase, the reason for higher sales but a great deal lower net income (before tax) are focused to equals of goods sold. Again, we need to take extreme cautions to make sure that existences, valuation, ownership of inventory are more or less presented. On the other hand, more procedures need to be done to make sure the revenue recognition is reasonable. Cash flow/accounts payable-inventory it has no balance recorded on the balance sheet for cash. Even though Primes current ratio is 1.19, but quick ratio is plainly 0.65. Even worse is that accounts receivable is not dependable due to likely collection problem or overstate ment. Accounts payable-inventory has increased 37% in 206, plus other current liabilities, Prime is facing a monstrous cash flow problem. The significant increase in Accounts payable-inventory pointed out over again the problem of inventory, either excessive inventory has been obtained or ineffective buying has been happening. Substantive procedures should be performed cautiously on accounts payable-inventory to make sure its valuation, existence. Positive bank confirmation should be obtained. Income tax payable/future income tax liabilities income taxpayable has decreased 81% in 206 but future income tax liabilities increased 4.7%. In total, it decreased 40% while net income decreased 47%. Examining the com put upation is necessary to make sure fair presentation of these two figures.ii. With respect to Pauls recommendation regarding the audit report, I have the following different opinions I dont agree that Paul loped subsequent yard accumulation to Primes accounts receivable an d inventory. From serving I depth psychology of financial ratio and the balance sheet, we know that Prime has a high control risk in accounts receivable and inventory, therefore, we can not restrict subsequent evidence accumulation. Controversially, sufficient evidences need to be stash away to allow the audit risk lower to an acceptable level. Paul concluded from what he could observe that natural control were present and appeared to be operating as intended. This is not correct. First of all, internal control has to be tested whether we rely on it or not. Secondly, Prime only did review engagement for prior years and never be audited. And an audited financial statement is needed for Primes loan approval process thus the management has the motive(prenominal) to manipulate the statements to get the loan. Plus concerns showed from their financial ratios and balance sheet, including high increased inventory, AR, AP, cash flow problems, all of these facts indicates that we are faci ng a node with high control risk and inherent risk. Internal controls have to be tested. Paul concluded that changing of LIFO account from FIFO has no big impact on income statement and balance sheet due to consistent inventory cost over the year. That is wrong. The inventory was increased significantly over two years, which means the cost of inventory in 205 could be in truth different comparing to 206. more than importantly, if LIFO is allowed used in 206, a retroactive procedure need to be done for previous years financial statements. Paul instructed the other assistant to ensure that goods shipped in the last fewer days of the year were recorded in sales. The shipped goods to customers is not the only criteria that we can recognize the sales. We need to make sure other criteria also presented, such(prenominal) as the amount can be measured and collection is reasonable assured or an allowance of bad and doubtful accounts is properly set up. 10 confirmations for AR have been se nt out. I am not sort of sure what this minute are based on. But if it is effective a random number, no sample size and materiality was put into consideration, it is not appropriate number. Paul believed that testing was sufficient for him to issue categorical audit opinion. Based on all above mentioned disagreement, this conclusion is sure too early to make. More substantive procedures need to be done. Evidences collected so far is not enough to make conclusion.iii. Other issues Without license from Mrs.Ruenstein, who is the owner of GoodFood Manufacturing, Paul showed Marvin a copy of GoodFoods financial statements and sure him about Mrs.Ruensteins plan to retire. This is violation of confidentiality policy. I think we should indicate Paul and inform GoodFood as soon as possible and explains the particular. Even though it might benefit the both parties, we still need to pose for GoodFoods complain/lawsuit.I look forward to hear from you and discuss more in details.Sincere ly,Wei Liub. Prime should consider the acquisition of GoodFood mainly based on the following facts They are in the same industry but focus on different customers. By acquiring GoodFood, Prime can expand its business into larger restaurant market. Primes watertight sales team has been successful in generating leads to attract bare-ass customers. Therefore, it meets Mrs.Ruensteins desire to invest additional effort to build up sales levels. GoodFood has plenty of excess capacity that can compensate Primes shortage of cash flow and other capacity.The concerns about financing the buy Prime might have difficulty to obtain a ample term loan to finance its purchase based on its current financial position. Even though Prime has increased sales in 205 and 206, but net income has dropped 47% in 206. It has large and increased current liabilities but has no original cash flow to depend on. Inventory is excessive, and ARs average collection period is dropped. Return on total equity h as dropped to 6.7% from 13.6% due to big drops in net income. All financial information is negative and can not support its financing request. However, if Prime can assume the storage constraints and change back to FIFO accounting, it might be a big difference. Its cost of goods sold would dropped and net income would be increasedQuestion 4A Letter to mount of DirectorsWei Liu, CGAXxx Audit and consulting dissipatedBoard of Directors,Townsville Recreation Centre (TRC)Date December xxx, 2009Dear Board members,It is my great pleasure to be in the position of providing my opinions regarding the creation of TRC and coming(prenominal) transfer of the un expert facilities from the municipality to TRC. The following you will find the discussions related to that and other issues requested by you, including the proposal for the social media site. Creation of TRC and transfer of the recreational facilities from the municipalityo As what we all understand, the purpose of creating ano ther self-directed level-headed entity, TRC, is to getting better information for decision making to offer a wider range of lessons and activities on a cost-effective basis. It is agreed that Townsville would transfer not only all existing properties of the recreational content operations and any related debt, but also all employees of the recreational centre. Therefore, from the financial perspective, TRC will record all transferred properties at fair value, record all related debt for remaining balance per banks confirmation, including unpaid accrued interests. A deferred capital contribution would be used to reflect the depoting from Townsville.As for all employees beingness assured that they would still be qualified for bonuss as well as wellness and insurance policy coverage, the mature need to make sure the details of the pension plans need to be discussed and prepared to outfit old employees and new employees and make sure the pension policies and procedures as wel l as health and insurance coverage policies and procedures are in place. It is better off for TRC to consider only offering the defined contribution pension plans to employees instead of defined benefit plans since the first one is less cost and less burden on TRC. The cost to cover the pension plans and coverage should also be planned and budgeted. Accounting policies, format of the financial statements, and information necessary for decision making o After transfer, TRC would be an independent non-for-profit legal entity. Therefore, all accounting policies need to be compliance with GAAP-general accepted accounting principles from CICA Handbook. PSA (Public sector accounting) Handbook will not be appropriate any more. TRC should determine and disclose which method is used for revenue recognition, either deferred method or the restricted fund method. The restricted fund method would be more suitable in TRCs situation since TRC receives subsidies for low-income individuals as restricted documentation. Separate reporting on this restricted funding would be benefit for users, including Townsville to better understand the statements. And other significant accounting policies, such as accounting for capital assets and donated materials and services, use of estimates etc.should be persistent and disclosed.o As for the format of financial statements, according to the GAAP, normally it take Statement of financial position statement of operations statement of changes in net assets statement of cash flows.o Information necessary for decision making the display board should obtain information not only from financial perspective, such as summary on TRCs financial position, implication of current economic, governments budget plan but also non financial execution reports, such as whether TRC would be actually offering more lessons and activities on a cost effective basis. Requirements of the information applied science dusto Although it is costly to invest a new information governing body, but without it, it is much harder to produce useful and more reliable information to assist management operations effectively and efficiently. The new information system should not only record basic accounting information, but also produce information, like costs and revenues preparation between budgeted amount and actual amount required funding reports data for performance measurement etc. Also the board should ensure that policies and procedures for data integrity and security, IT supports, training for skilled personnel are all in place. Implications of the change in employmento As part of transferring agreement, all current employees of the recreational centre will become employees of the TRC and they will be still eligible for pensions and health and insurance coverage. Therefore, all income tax, CPP and EI have been contributed will be considered as contributed under TRC. For those employees who are nearly retiring, they can chose move the ir pension plan to TRC or leave it. And they can start to withdraw once their age reached to the defined age in the pension plan. Independent contractors and employeeso From the taxs point of view, making a distinction between independent contractors and employees is very important since for independent contractors, they are responsible for reporting business income for their tax return. TRC has no responsibility to withhold income tax, CPP and EI for them and do not have to provide same benefits to contractors as employees have. TRC also do not pay EHT for amount paid to independent contractors but need to pay EHT for remuneration paid to employees. o The factors to consider for distinctions between independent contractors and employees Controls Generally, in an employer-employee relationship, the employer controls, directly or indirectly, the way the work is to be done and the work methods used. But the contractors controls if he/she has the right to hire or fire, and decide where , when and how the work will be done. Ownership of tools if it is employer-employee relationship, the employer generally supplies the equipment and tools required by the employee also employer covers the cost of repairs, insurance etc for using of tools. Chance of profit/risk of loss the employees are entitle to his or her full salary or wages regardless of the financial health of the business, the employer alone assumes the risk of loss. But for contractors, all risks are his/hers. consolidation or organization test the tasks performed by employees form an integral part of the business but tasks performed by the independent contractor merely being accessory to the business. Revenues TRCs revenues include subsidies provided by the Townsville, membership fees, registration fees and renting fees. To maximum the revenues, I would like to recommendo Subsidies from the Townsville to be eligible to get the funding, TRC will have to provide complete listings of names, income levels, an d subsidies provided. This information has previously been tracked through Townsvilles accounting system. Therefore, TRC could use the same system and maintain the same reporting to ensure maximum subsidies funding.o For memberships are provided free of charge to families below a specific income level, the membership fees are actually covered by subsidies funding, revenue should be recognized even through the funding not yet received and fund receivable from Townsville could be set up.o Registration fees under the municipalitys management, often the lesson was run at a loss due to under registration or a higher than anticipated number of subsidized registrants. Therefore, the board should enforce the management in TRC to implement a better budget system to budget the registration fees and number of enrolment. The board and the management should work on strategies of getting more people to sign the lessons and activities. Meanwhile, TRC should consider orbit up a policy that m aintains the right of cancellation of lessons/activities in the case of enrollment not covering the cost.o Rental fees rental of the facilities is scheduled only around the times that the facilities are open to members and the general public, thus the rental income is limited due to time restraints. The board should consider a plan to expand available time for rental and fully use the facilities to maximum the rental income. Performance measureso I understood that TRC would evaluate employees performance partly based on measures that are reflective of the foreign mission statement objectives. Therefore, the board should be provided with performance reports that can help you to define the mission statement objectives have been met. The list below should be considered for performance measures The number of lessons/activities offered The type of lessons/activities offered The number of attendants for each type of lessons/activities newly developed lessons/activities offered Attendan ts for new lessons/activities Number of individuals received subsidies Type of lessons/activities offered to low-income families Cost and revenue for each type of lessons/activities. Internal controls for Casho It seems that the internal controls for cash were not quite adequate due to the fact of theft of cash. To ensure this not continually happening in TRC, the board should make sure better internal control polices and procedures for cash management are in place, such as segregation of duties for collecting and recording and bank reconciliations more frequent cash deposit proper authorizations, etc the board should also make sure the death penalty of the controls will be happening. Auditor for TRCo According to Canadian auditing standard, we can not accept audit engagement if we provide non-assurance services, such as accounting and bookkeeping services valuation services internal audit service financial information systems design or implementation services. Based on the fact t hat we are now providing the consulting services not relating to those, we will be able to provide audit service to you. As for the fees schedule, we need to follow a standard fee schedule. Proposal of the social media siteo The social media site provides many benefits for TRC to expand. While building up the site is necessary, many things need to be taken into consideration, especially when it is related to confidentiality and safety of information. It is not appropriate to publish the lists of all people being subsidized because it might violate the confidentiality policy also to be able to keep the information collected safe, including clients credit computer menu number, the site has to be maintained under certain security to ensure data security. Besides, the board need to make sure whether there are skilled or enough personnel to maintain the site. More importantly, the board need to evaluate the overall costs to make sure that TRC does have the capacity to run this media sit e in a cost effective manner.If you need more clarification, please feel free to contact me. I would be happy to discuss more details with you.Sincerely,The end of concession 8