I have attached a case in the attachments section, and the following requirements need to be fulfilled based on the case. Please look at all of the additional materials posted in the attachments section as well as they will be needed to be used to complete the requirements. There is no need for the use of external resources however if used please provide full citations using APA. Keep in mind this needs to be done following Canadian Auditing Standards. This paper needs to be 8 pages single spaced (or less) as long as the requirements are covered thoroughly and adequately. Please ensure you are well versed with canadian accounting and auditing standards and with the field in general before considering taking on this paper as that knowledge will be necessary to complete this well.
Thank you
Requirements:
1) Prepare a memo where you assess the new audit engagement based on case facts
and provide a recommendation regarding its acceptance or rejection.
2) Provide a list of any additional information that you may need in order to make a better assessment of this new engagement.
3) Assess overall planning and performance materiality for the 1996 audit.
Additional information and guidelines for the requirements:
Requirement #1:
Accept a new engagement? Continue an existing engagement?
1) Can you perform the engagement? (professional considerations)
a. Competence (industry expertise, staff availability, etc.)
b. Independence (independence threat analysis: 5 categories of threats + applicable
safeguards). Do not forget to consider both independence in fact and in appearance
2) Do you want to perform the engagement? (commercial and other professional
considerations)
a. Profitability of the engagement: audit costs, audit fees (amount, likelihood of
payment)
b. Reputation
Acceptance risks = Engagement risks:
Professional risks (risks due to potential noncompliance with standards and regulation)
+ Commercial risks (short and long-term commercial risks due to accepting to audit the client’s
FS)
Commercial risks = Financial risks + Reputational risks
Requirement #3:
1) To assess overall planning materiality (OPM):
i. Identify the main categories of users of the FS (e.g., owners, shareholders, investors, bankers, creditors, CRA, etc.) based on the audit circumstances/case facts.
For example, for a public company, the main category of users would generally be shareholders.
ii. Select two or three benchmarks (from slides for Ch. 4, 6, 7 & 10) that, based on your professional judgment, would be the most important to the main categories of users of the FS (i.e., choices of benchmarks should be justified).
For example, for a public company where the main category of users would be shareholders, the shareholders’ main concern/interest would be the company’s profitability. Therefore, net income before taxes could be a potential appropriate benchmark.
iii. For each proposed benchmark, calculate the min. and max. values using the suggested min. and max. percentages in the slides for Ch. 4, 6, 7 & 10.
iv. Finally, recommend one single OPM level/amount based on your judgment among the two or three intervals calculated above.
Usually, we select a lower OPM level/amount if based on audit circumstances/case facts, we think that one or more of the main categories of users of the FS would be particularly sensitive to/concerned about smaller misstatements in the current year (e.g., company is going public in near future, company is highly indebted, etc.).
2) To assess performance materiality (PM):
i. Explain the concept of PM (what does that mean? Why is it used instead of OPM to decide whether the total estimated misstatements in the FS are material or not? Etc.)
ii. Calculate an interval for PM (typically, 60% to 80% of OPM)
iii. Finally, recommend one single PM level/amount based on your judgment within the interval calculated above.
Similar to the final recommendation about OPM above, we usually select a lower PM level/amount if based on audit circumstances/case facts, we think that one or more of the main categories of users of the FS would be particularly sensitive to/concerned about smaller misstatements in the current year.
• The learning aid about the Overall Planning Materiality and Performance
Materiality in FS audits that is attached in the attachments section will help with this question.
