Armstrong, Aldrin & Collins Professional Corporation (AAC) operates a public accounting practice that is located in Woodstock, Ontario. AAC’s common shares are owned equally by its three shareholders, who are Chartered Professional Accountants (CPAs). A plan to open an office in Stratford, Ontario, on November 1, 2023, has been developed. Financing has been arranged with the bank subject to AAC providing the bank with its audited financial statements prepared in accordance with Accounting Standards for Private Enterprises for the fiscal year ending September 30, 2023, and for subsequent fiscal years.

AAC has engaged Smithee & Co., CPAs, to perform the audit of AAC’s financial statements for the year ending September 30, 2023. You, a CPA, have been assigned the role of audit senior on this engagement.

It is July 25, 2023, and Roberta Payette, the engagement partner, calls you into her office and says: “I want you to prepare the audit engagement planning memo for the AAC audit. Please consider the risk and appropriate audit strategy. You should note that AAC’s financial statements have not been previously independently audited or reviewed.” The partner continues: “AAC has implemented a new working paper preparation and maintenance system and the shareholders have asked us to identify any weaknesses in the system and to provide recommendations for improving the system. The shareholders want the new system to provide proper quality control for AAC. I want you to prepare a draft report that addresses this client request.”

Background information AAC was formed seven years ago and has experienced rapid growth. AAC has hired three university graduates who will start work in September 2023. Roberta says that Wally Cunningham, AAC’s controller, is responsible for setting accounting policies because the shareholders are “too busy growing the business to spend time on internal accounting matters, and Wally has a university accounting degree and knows what he is doing.” However, Wally has recently found it difficult to keep up to date with auditing and accounting standards.

Required

a. Prepare an audit planning memo considering the audit risk and audit approach.

b. Prepare a draft report that addresses the control weaknesses of the new system. For each item, address the implication and make a recommendation.

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NOTES PREPARED BY THE PARTNER ABOUT THE NEW WORKING PAPER PREPARATION AND MAINTENANCE SYSTEM Background information A new working paper preparation and maintenance system was developed during the three months from November 2022 to January 2023. The new system, which became effective on Feb- ruary 1, 2023, allows for the storage of all working paper files on a secure website from which a client's information can be accessed, worked on, and reviewed from any place having an Internet connection (e.g., the AAC office, client offices, residences of staff members, and hotel rooms). Passwords The website is a secure site that uses 128-bit encryption for any interaction with remote computers. Each authorized AAC staff member is assigned a personal password that allows access to the sys- tem and records who uses the system and the names of the files opened. These specific passwords are stored on each staff member's computer, which allows for quick and automatic login once the site is connected by the Internet browser. After login has been achieved, the staff member starts the working paper preparation software, ClientPrep, and can use any element of this program. Software The Clientprep software includes audit and review engagement assurance planning templates, standard audit program forms and working paper templates, and standard correspondence forms. When the Client Prep working papers are completed, the software produces financial statements using standard templates, with standard note disclosures. An AAC partner can access and review any portion of a working paper file on which a staff member is still working.