Fax It To Me (“FITM”) Inc., is a software company that has developed technology that allows for faxing documents using your personal computer and has been audited by a local firm in Montreal, QC, Stanislov and Pang, LLP. The audit firm has just promoted Jan Majorowicz to the position of Audit Manager. The responsibilities of the Manager include planning the audit, reviewing the working papers of the staff and drafting the overall audit opinion. Jan is working on the year end financials for FITM which has a June 30, 2016 year end. Key financial information is in Appendix A. Required: Use the Case Facts above to outline the answers for the following. Any answer with no application to the case will be awarded zero marks A) In reviewing the financial statements, perform five (5) analytical procedures and discuss the rationale for specific balances, disclosures or presentations that would warrant further follow-up based upon the results of your calculations. Show all calculations. Use the following table format

Identify three (3) audit tests of controls that you could perform and the related specific financial statement assertions to validate licensing revenue. Use the table format below

Tests of control                                                                       Specific audit assertion

Unaudited Audited June 30,2016 June 30, 2015 Revenue Licensing revenue 105,682 203,006 Costs and expenses Research & Development Costs 15,365 36,383 Salaries & Wages (Note 1). 62,780 97,690 Commissions (Note 2) 22,455 27,790 Bad Debts (Note 5) 1,650 328 Interest Expense (Note 3) 800 650 Administrative expense 15,731 38,810 Total costs and expenses 118,781 201,651 Income (Loss) before income taxes (13,099) (1,355) Income taxes (recovery) (5,405) (215) Net earnings (Loss) (7,694) (1,140)

Extracts from the Statement of Financial Position (‘000’s CAD) Cash and Marketable Securities 110 891 Accounts receivable 39,256 14,117 and laying off 75% of its workforce. No other products are in development in the R&D pipeline. 

2). FITM advances commissions to its salespeople each month based on 25% of their salary. When commissions are earned, advances are deducted from the earned salary. Salespeople are not required to repay advances when they leave FITM. 

3). FITM is in the midst of re-negotiating its financing as it defaulted on its last monthly payment due August 2016. No further financing has been secured and Jan estimates that the company only has enough cash to sustain operations until March 2017. 

4). With the decline in sales, FITM is canceling plans to build a research lab on a piece of land purchased in 2014. The land has appreciated in value from $10M in 2014 to $18M in 2016. 

5). In 2016, FITM began a program for customers to pay in 6 monthly installments using their credit card. However, payment defaults increased as customers would cancel their credit cards or exceed their credit card limits during the 6 month period. With the reduced workforce, FITM has been unable to collect these default accounts. 

6). Mohan, the Accounting Supervisor, has informed Jan that the Canada Revenue Agency has filed a claim against FITM for unreported and unpaid Harmonized Sales Taxes (“HST”) since the company’s inception. Mohan has not accrued anything as he is not trained in IFRS and is unsure what the proper accounting treatment is.

Answer rating: 100% (QA)

AIn reviewing the financial statements perform five 5 analytical procedures and discuss the rationale for specific balances disclosures or presentations that would warrant further followup based upon ... View the full answer