$.$ Case:

Today is October $20{?}^{\text{m}\text{i}\text{t}}2023,$ You, CPA, are an audit manager at

Hunter & Smith LLP $($H&S$).$ H&S has been engaged by the

board of directors to audit the financial statements of Blackstone

Incorporated $($Blackstone$)$ for the year ending December $31,$

H&S has maintained a strong relationship with

Blackstone, usually completing the audit by March ${31}^{st}$ each

year. During the fiscal year under audit, there have been no

significant audit issues that would impact the financial statement

users which include the owners of Blackstone along with their

lenders. However, H&S has become aware of a newly imposed

bank covenant which requires Blackstone to maintain a current

ratio of $1\mathrm{.}5$:$1.$

Today, you have met with the engagement partner to discuss the

audit. The engagement partner recently had a meeting with

Blackstone's CFO, Sarah Allan, who indicated that Blackstone

is planning an IPO for fiscal $2023.$ Sarah also noted that the

draft financial statements have been prepared under

International Financial Reporting Standards $($IFRS$).$

During your meeting the engagement partner says to you, "Sarah

expressed concern about the financial controller's sudden

departure shortly after the IFRS adjustments were completed.

Please keep this confidential as Sarah was quite sensitive to this

information. This does cause quite a bit of concern, however,

due to both Sarah and the executive team's long tenure at

Blackstone I know they are well versed in this industry and have

the appropriate expertise and knowledge."

"With the sudden change of a possible Initial Public Offering

$($IPO$),$ we will need to quickly draft an audit plan for my review.

This audit plan should include a discussion regarding key audit

risks as well as our approach for the audit which will either be

substantive or combined. Please ensure that you state the overall

audit risk of the file by considering any inherent risks, control

risks and detection risks. When discussing your audit approach

please ensure you have strong documentation supporting your

approach. I will also need you to consider materiality and

performance materiality for the audit. Please include a

discussion on the users to corroborate how you determined your

selected base for materiality" selected base for materiality."

"Within your audit plan, please also include planned audit

procedures that you will perform over key financial statement

accounts. I am looking for you to include a discussion on what

you believe the risk for that account will be along with the

assertion and specific audit procedure. We should also complete

an analytical review of some of the major income statement

fluctuations in the current year and assess some key financial

ratios compared to prior year. For your financial ratio analysis

please consider ratios calculated based on the balance sheet and

income statement."

"Lastly, please also prepare a quick memo describing our

responsibilities as auditor's related to the IPO and the

prospectus."

You left your meeting with your engagement partner feeling

slightly overwhelmed but ready to complete his requested tasks.

After your meeting with the engagement partner. You gave

Sarah Allan a call and decided to schedule an in person meeting

with Sarah at Blackstone's head office. You plan to take notes

during your meeting to Sarah to review after. Please refer to

Appendix I for your notes.

Appendix I $-$ Notes

Blackstone Incorporated $($Blackstone$)$ is a private company that

focuses on manufacturing product. Management is aware that

there has been significant demand for their products therefore to

further meet customer demand the Board of Directors along with

Management have decided to pursue an IPO. An underwriting

firm has agreed to complete the IPO for December $1^{*s},2023.$

Sarah has provided current year financial results as of

September ${30}^{\text{m}\text{i}\text{t}},2023$ along with prior$-$year comparative figures

which have been prepared under IFRS in anticipation for the

IPO. Sarah mentione lackstone has been without a

financial controller since October $2^{nd},2023$ and that she has been

relying on the finance and administration team to take on

additional tasks to ensure a successful IPO and prepare for the December $31"$ audit. Please refer to the excerpts of the financial

results in Appendix II$.$

Budgets for the next fiscal year are set by the senior

management group in December of each year. For variance

analysis purposes, the budget is updated with actuals on a

quarterly basis. Senior management reviews actual results

compared to budget at the end of each quarter.

Two years ago, Blackstone began using a new production

system which interfaced with the inventory subledger in the

accounting system. However, during $2023$ the system was

abandoned as there was realization that the system was not

functioning as intended. Due to this, Management has had