I need answer of part 10

Part A: Case Analysis:

Porto Waste Facilities Inc. (PWF) is a large, diversified Canadian-controlled private company

with several Canadian and US subsidiaries, operating mainly in the waste management and

disposal industry. PWF was incorporated in 1955 and has grown to become one of the top four

waste management firms in Canada. The business was started by the Porto family, but currently

no family members are actively involved in the management of the company. The shares are

owned by family members, family trusts, and a limited number of friends. In 2017, the Porto

family decided to sell the company to a third party within the next two or three years to realize

the value of their shareholdings. PWF has an August 31 year end. The company has elected to

report using International Financial Reporting Standards ("IFRS").

It is now October 18, 2019.

You, CPA, work for Hoa LLP. You are currently in charge of the audit of Porto. You had a

meeting with PWF's management and staff and have collected the following information. The

partner on the engagement has asked you to identify any financial accounting issues and discuss them using IFRS and conclude on the appropriate treatment that you would expect PWF to follow in preparation of its financial statements.

1. A team of provincial sales tax auditors has been auditing PWF for nearly six months, but the

audit is still not complete. The auditors are disputing certain expenses that PWF recognized

for tax purposes which resulted in PWF paying substantial less tax in the past two years that

the company would otherwise have to pay.

2. On June 23, 2019, PWF received a wire transfer of $10 million to its general Canadian dollar

bank account, assuming that this amount was to settle an outstanding customer invoice.

Days after, PWF realized that the amount was deposited in error. PWF has not informed the

bank of the error and has taken $10 million into income as a 'gain'.

3. During 2019, PWF lost a decision in the Federal Court of Appeal in a lawsuit brought by

Waste Systems Integrated Limited for patent infringement. In an unusual award, the court

ordered PWF to pay $18 million for 100% shares of Waste Systems Integrated Limited, a

private company, which had been in some financial difficulty. PWF has decided not to

appeal the decision to the Supreme Court, and the shares were purchased before year-end.

Since PWF now owns the patent, PWF is now considering how to best protect this

technology going forward and the board is interested in understanding the accounting

implication for this patent.

4. PWF purchased shares of a private company that is PWF's equipment supplier. After the

purchase, PWF owned 18% of the shares outstanding. PWF invested in the company due to a long-standing relationship with the company's management, as well as the access to any new equipment technologies that can help to enhance the nature of PWF's future business. PWF is able to appoint one out of five board members but PWF has not done so yet.

5. PWF bids on various municipal waste pick-up and disposal contracts. PWF buys waste disposal sites to dump the waste collected. PWF defers and amortizes the cost of the sites over the expected useful lives of the sites, stated in tonnes of capacity, years of remaining

usage, or cubic meters of waste capacity. Amortization of the cost of these sites represents

41% of PWF's operating expenses and therefore, have a significant impact on net income.

Provisions for clean-up and site sealing costs are recorded based on management's estimate

and are amortized at the same rate as the sites. Recently, it has been widely discussed that

over the years environmental regulation is increasing and companies like PWF are now

expected to adhere to more strict guidelines when it comes to clean-up of sites etc.

Every year PWF updates the estimates of the remaining useful lives of waste disposal sites,

using the services of a consulting engineering firm. In the past, PWF used Folk & Co,

Environmental Engineers, for these reviews. Folk & Co. did no other work for PWF.

Starting in 2019, PWF used Cajanza Consulting Engineers for the reviews. Based on the

new consultants' report, the useful lives of all waste-disposal sites have been increased

between 4% and 26% and the sealing/clean-up provision reduced by $13.6 million.

6. During 2019, PWF was awarded a contract to collect and dispose of all the waste for the

Regional Municipality of Onkon-Lakerton for five years commencing in 2020. The contract

requires the municipality to pay PWF $9.50 per metric ton of waste collected. Because of

aggressive recycling, composting, and waste reduction programs being carried out by the

municipality, PWF negotiated a clause in the agreement that states that the company will be

paid a minimum of $3.2 million per annum, regardless of the collection volume. PWF has

recorded $16 million ($3.2 million x 5 years) as revenue in 2019.

7. In light of the planned sale of PWF, the Board of Directors has decided to stop buying waste disposal sites and to sell two sites where the expected clean-up expenses exceed the sites' net book values. PWF plans to sell the two sites to Porto (Bermuda) Inc. for a dollar. The

controlling shareholders of Porto (Bermuda) Inc. are the same as the controlling shareholders

of PWF. PWF plans to dump waste in these sites. Hoa's audit personnel heard a rumour that

Porto (Bermuda) Inc. does not plan to comply with environmental legislation.

8. Using its own waste disposal technology, PWF builds some of the equipment that it

needs to process certain wastes. The equipment took 6 months to construct. This was

the first time that this type of equipment was constructed. During the most recent fiscal

year, the following expenditures were capitalized:

Components and parts $322,100

Employees annual wages and

benefits

208,220

Overhead costs 208,000

Interest on borrowings 312,680

9. PWF's existing bank loans are secured by a first charge on receivables. The mortgage payable is secured by a first mortgage on the land and building. As PWF was pressed for cash, PWF decided to sell 90% of their receivables to Icon Factoring Company without recourse in October.

10. The Government of Canada provided a $250,000 grant to PWF, the successful bidder, to

purchase capital equipment related to recycling. The bidder had to spend the amount before

July 1, 2019. The successful bidder had to produce a report by July 1, 2020 that the

equipment resulted in 20% increase in waste being recycled. PWF acquired the equipment

in June 2019.

11.

The accounts payable listing includes a $2,986,898 payable to Cajanza Consulting for work

performed in 2017.

Required:

Prepare the report as required by your Partner. In discussing key financial issues, please make

sure to quote the proper section from the CPA handbook that is relevant to your discussion,

As the Porto family plans to sell the business in the future, you are also asked to assess and

address any issues regarding the integrity of their financial reporting. Any obvious management

biases in their financial reporting should be reviewed in your report.