Explain the significance of each of the following audit procedures that the auditor conducts for subsequent events (3 marks). 

1) Inquiry of Management 

2) Acquisition of Letter of Representation 

3) Correspondence With Law Firms G. Irwin Corporation has reported a loss for the sixth year in a row. Irwin also has a large bank loan due in the coming year, bringing its current ratio to 0.60. 

Further, due to recent economic slowdown, Irwin had to increase its bad debt expense by 4% and saw its largest client, Forest Woods file for bankruptcy. Forest Woods’ purchases made up 18% of Irwin's total sales in the past year. Forest Woods also had an unpaid balance to Irwin at year end. To reduce expenses, Irwin has reduced employee training from 5 days to 1 day. During the year, an employee was seriously injured in the production process when his arm was caught in a press. The employee has filed a lawsuit against Irwin for $1,000,000 and claims that he was not properly trained to use the equipment. The legal proceeding for this case should begin in the next fiscal year. Since Irwin has never been involved in such a lawsuit before, the legal counsel indicated that they were not able to estimate the amount and likelihood that Irwin would have to pay. 

Required: 

Evaluate the going concern situation at Irwin and indicate what the auditor would be required to do under the Canadian Auditing Standards. 

H. Analyze the "Responsibilities for the Audit of Financial Statements" section of the unmodified Independent Auditors' Report. 

Explain the intended purpose of the sentences in this section, specifically with regards to the following (5 marks): 

• The auditor responsibility paragraph 

• The auditor's use of professional judgment 

• The sufficient and appropriate evidential

I. The Westmont Factory Ltd. manufactures high-end mountain bicycles (MTB) of many different sizes and types. 

The company employs 55 employees, all paid on an hourly basis. Employees fill in time sheets and hand them in every Monday to the payroll clerk, Annabella. For factory employees, the time sheet shows the hours worked by product job number and indicates if the job has been completed. The payroll clerk tracks the hours worked by job. 

When a job is complete, she compares the actual hour totals to the estimate made by the owner, Boris. An efficiency bonus is paid for actual hours paid lesser than the estimated hours and amount. Every Wednesday, Annabella prepares the cheques and gives them to Boris for signing. Annabella then staples the cheques to the payroll stubs. Annabella hands out the office cheques and gives the other cheques to the factory supervisor for distribution. 

Required: 

A) Identify control weaknesses and their impact and provide recommendations for improvement.

B) What is the impact of the control weaknesses upon your audit approach?

Answer rating: 100% (QA)

A I An organizations workers investors senior administration and top managerial staff anticipate that it should lead business dependably effectively and safelyparticularly its monetary exchanges Inter... View the full answer