ACCT. 506 - AUDITING SPRING 2025

AUDIT GROUP PROJECT

Purpose:

The purpose of this audit project is to provide real life audit experience in auditing a company's financial statements.

Instructions:

Attached is the 2023 financial statements of We, Inc.

Your group is to perform an audit of We, Inc. 2023 financial statements and incorporate all of what you have learned in this audit class. You should and will incorporate what you have learned from Acct. 301 and 302 Intermediate Accounting I and II. The professor is the CFO of We, Inc. and your group is the auditors. You may ask questions of the CFO to clarify any uncertainties or ambiguities.

See requirements below.

Requirements:

Your group is to prepare a written report.

Your group written report should address the following questions as your group review and audit the 2023 financial statements of We, Inc.

Provide a summary of each issue/matter found by your team.

For each of issue/ matter found, identify and explain the related assertion for which the issue/matter relates to.

For issue/matter, if the Company is required to adjust the financial statements, please provide what your team would suggest in terms of journal entry.

When all said and done, what type of opinion would your group issue and explain why? (See Chapter 3)

Internal control matters - does your group plan to issue any internal control letters? If yes, what kind?

We, Inc.

Financial Statements

As of and for the year ended December 31, 2023

Financial Statements:

Balance Sheets 1

Statements of Operations	2
Statements of Changes in Stockholders' Equity	3
Statements of Cash Flows	4
Notes to Financial Statements	5-9

Balance Sheets

As of December 31, 2023

ASSETS

Current assets: 2023 2022

Cash and cash equivalents	$524,600	$ -
Restricted cash	225,000	-
Accounts receivables, net of allowance of $12,000	279,800	-
Prepaids and other current assets	62,570	-
Total current assets	1,091,970	-
Property and equipment, Net	320,000	-
Long term investments, available for sale, at estimated fair value	620,500	-
Other assets	102,560	-
Total assets	$ 2,135,030	$ -

LIABILITIES AND STOCKHOLDER'S EQUITY

Current liabilities:

Accounts payable	$389,560	$ -
Accrued expenses, including accrued interest of $26,250	223,140	-
Current portion of debt	100,000	-

Total current liabilities 712,700 -

Deferred revenue	354,600	-
Long-term portion of debt	400,000	-

Total liabilities 1,467,300 -

Class A common stock, $0.01 par value; 100,000 shares authorized;
10,000 shares issued and outstanding as of December 31, 2024	1,000	-
Additional paid-in capital	49,000	-
Retained earnings (accumulated deficit)	617,730	-
Total stockholder's equity (deficit)	667,730	-
Total liabilities and stockholder's equity	$2,135,030	$-

Commitments and contingencies (Note 5) Stockholder's equity (deficit):

Statements of Operations

For the year ended December 31, 2023

	2023	2022
Revenue:
Service revenue	$2,250,000	$-
Other revenue	8,870	-

Total revenues 2,258,870 -

Operating expenses:

Sales and marketing	187,900	-
Compensation and related benefits	598,230	-
Research and development	174,000	-
General and administrative	287,900	-
Depreciation expense	50,000	-

Total operating expenses 1,298,030 -

Income from operations 960,840 -

Other (income) and expenses: Changes in unrealized gains	(86,550)
Interest expense	26,250	-
Other expense, net	151	-

Total other (income) and expenses (60,149) -

Income before income tax expense 1,020,989 - Income tax expense 403,259 -

Net income

$ 617,730

$ -

We, Inc.

Statements of Changes in Stockholders' Equity

For the year ended December 31, 2023

	Class A Common Stock SharesAmount	Additional Paid-in Capital	Retained Earnings (Accumulated Deficit)	Total Stockholder's Equity (Deficit)
Balance, January 1, 2023	-$-	$-	$-	$-
Sale of Class A common stock	10,000$1,000	$49,000	$-	$50,000
Net income	- -	-	617,730	617,730
Balance, December 31, 2023	10,000 $1,000	$49,000	$617,730	$667,730

Statements of Cash Flows

For the year ended December 31, 2023

2023 2022

Cash flows from operating activities:

Net income	$ 617,730	$-
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	50,000	-
Unchanges in unrealized gains	(86,550)
Changes in operating assets and liabilities:
Accounts receivables	(279,800)	-
Prepaids and other current assets	(62,570)	-
Other assets	(102,560)	-
Accounts payable	389,560	-
Accrued expenses	223,140	-
Deferred revenue	354,600	-

Purchases of property and equipment	(370,000)
Purchase of investments avavilable for sale	(533,950)	-

Net cash provided in operating activities 1,103,550 - Cash flows from investing activities:

Proceeds from sale of Class A common stock	50,000
Proceeds from issuance of debt	500,000	-
Net cash provided by financing activities	550,000	-
Net increase in cash and restricted cash	749,600	-
Cash and restricted cash, beginning of year	-	-
Cash and restricted cash, end of year	$749,600	$-

Net cash used in investing activities (903,950) - Cash flows from financing activities:

Organization and Description of Business

Organization and Business Purpose

We, Inc. (collectively, the "Company") incorporated on January 1, 2023, is a Delaware Corporation. The Company is an identity verification network.

The Company is initially funded through sale of the Company's stock for total proceeds of $50,000. The Company's fiscal year-end is December 31.

Summary of Significant Accounting Policies

Basis of Presentation and Use of Estimates

The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates are based on information available as of the date of the consolidated financial statements; therefore, actual results could differ materially from those estimates.

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers all highly liquid instruments purchased with an original maturity of three months or less and cash held at the bank, to be cash equivalents. The Company maintains its cash and cash equivalents with financial institutions. Cash held may exceed the amount insured by Federal Deposit Insurance Corporation (FDIC).

As of December 31, 2023, reconciliation of cash and cash equivalents are as follows:

Bank Name	Balance Per Bank @ 12/31/23	Deposit in Transit	Outstanding Checks	Other Recon. Items	Balance Per GL @ 12/31/23
BofA #1 Checking	$150,000	10,000	(170,000)	-	$(10,000)
Chase #1 Checking	$110,000	20,000	(60,000)	(2,000)	$68,000
Chase #2 Savings	$450,000	36,600	(20,000)	-	$466,600
Citi #1 - Restricted Cash	$ 225,000	-	-	-	$ 225,000
	$ 935,000				$ 749,600

Summary of Significant Accounting Policies, continued

Revenue Recognition

The Company accounts for revenue in accordance with Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers ("ASC 606"). The new guidance sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in U.S. GAAP. The standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in the prior accounting guidance. The Company recognizes revenue when control of promised goods or services is transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those goods or services.

The Company determines revenue recognition through the following steps:

Identification of the contract, or contracts, with a customer;

Identification of the performance obligations in the contract;

Determination of the transaction price;

Allocation of the transaction price to the performance obligations in the contract; and

Recognition of revenue when, or as, a performance obligation is satisfied.

Revenues includes (i) services earned from identity verification and (ii) other revenue.

Property and Equipment, Net

Property and equipment, net, are stated at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the respective assets, which ranges from three to four years. When assets are sold or retired, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss, if any, is included in the statements of operations. Maintenance and repairs are charged to expense as incurred.

Impairment of Long-Lived Assets

The Company accounts for its long-lived assets in accordance with Accounting Standards Codification ("ASC") 360-10-05, Impairment or Disposal of Long-Lived Assets. Long-lived assets, including property, equipment and capitalized software and intangibles, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured first by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, an impairment loss would be recognized based on the excess of the carrying amount of the asset above the fair value of the asset. For the year ended December 31, 2023, the Company had not recorded any impairment loss.

Summary of Significant Accounting Policies, continued

Comprehensive Income (Loss)

Comprehensive income or loss is defined as the change in equity of the Company during a period from transactions and other events and circumstances excluding transactions resulting from investments by owners and distributions to owners. For the year ended December 31, 2023, the Company had no items of other comprehensive income or loss. Therefore, the net income or loss equals comprehensive income or loss for the year ended December 31, 2023.

Income Taxes

The Company's accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the consolidated financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company recognizes deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

Fair Value Measurements

Long term investments are carried at estimated fair value. The availability of valuation techniques and observable inputs can vary from investment to investment and is affected by a wide variety of factors, including the type of investment, whether the investment is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Those estimated values do not necessarily represent the amounts that may be ultimately realized due to the occurrence of future circumstances that cannot be reasonably determined. Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the investments existed. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for investments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined by the lowest level input that is significant to the fair value measurement.

3. Investments

The Company invests its excess cash into in various publicly traded stock which are held as available for sale. Investments consist of the followings as of December 31, 2023.

Investment Name	Acquisition Date	Acquisition Cost Per Share	Quantity Purchased	Quantity Sold
Apple stock	Feb. 13, 2023	175	1500	-
Walt Disney stock	July 26, 2023	89	750	-
NetFlix stock	October 7, 2023	445	460	-

4. Property and Equipment, Net

Property and equipment, net, consists of the following as of December 31:

Asset Name	Acquisition Accumulated CostDepreciation	Net Book Value	Acquisition Date	Date In Service	Useful Life (in Years)	Salvage Value	Impaired at Year End
Automobile	$70,000 $	10,467	$59,533	Jan. 1, 2023	May. 1, 2023	4	Zero	No
Machines	$110,000 $	27,500	$82,500	March 1, 2023	April 1, 2023	3	Zero	No
Equipment	$ 190,000 $12,033 $177,967	June 15, 2023	Septeber 1, 2023	4	Zero	No

$ 370,000 $

50,000 $

320,000

Note: The Company uses straight-line method for depreciation for all asset classes using a monthly convention - meaning depreciation is based on monthly. Additionally, the Company stated that there are no impairment of assets at year end.

Depreciation expense for the year ended December 31, 2023 was $50,000.

5. Debt

The components and information of the Company's debt as of December 31, 2023 are as follows:

Lender Name		Principal Amount	Issuance Date	Interest Rate (Annual)	Maturity Date
ABC Lends You	$	500,000	Jun. 1, 2023	9%	Jun. 1, 2027

Note: Interest is calculated or accrued on a monthly basis, and payable on first date of the subsequent month.

No interest payments have been paid as of December 31, 2023. Principal is to be paid on a monthly basis. The Company did not incur any debt issuance cost.

6. Stockholders' Equity

Upon incorporation of the Company on January 1, 2023, the Company's Board of Directors authorized to issue 100,000 Class A common stock with par value of $0.01 per share, and sold 10,000 shares of Class A common stock at a price of $5 per share.

As of December 31, 2023, the Company has 100,000 Class A common shares authorized for issuance. Holders of Class A common stock are entitled to dividends if and when declared by the Board of Directors. No dividends have been declared as of December 31, 2023. As of December 31, 2023, there were 10,000 Class A common shares issued and outstanding.

Commitments and Contingencies

Claims and Legal Proceedings in the Ordinary Course of Business

From time to time, the Company may be involved in legal proceedings arising mainly from the ordinary course of its business. The Company may become a party to various litigation matters and disputes during the year. Subsequent to December 31, 2023, the Company's external attorney has communicated to the Company and Company's management that it may lose in the employee lawsuit filed by the employee in 2023. Such loss is highly probable, and amount of loss has been determined to be $120,000. There are no other commitments and contingencies as of and for the year ended December 31, 2023.

8. Subsequent Event

The Company evaluated subsequent events for recognition and disclosure through April 30, 2024, the date which these financial statements were available to be issued. Nothing has occurred outside normal operations since December 31, 2023, that required recognition or disclosure in these financial statements except as disclosed below.

On March 12, 2024, the Company entered into a purchase agreement to acquire all the outstanding stock of "Seek Me, Inc." for a total cash consideration of $15,000,000.