Overlook  Video  Stores  Inc.  (OVS)  is  a  privately-­held  chain  of  DVD  rental  stores   headquartered  in  Toronto.  The  company  was  incorporated  in  1992  and  has  gone  from  a single  store  in  Toronto  to  over  30  stores  throughout  Ontario. Harford  &  Harford,  LLP  (H&H),  a  mid-­sized  professional  services  firm,  have  been  the   auditors  for  OVS since  its  inception.  You,  CA,  are  the  audit  senior  on  the  OVS  audit  for   the  year  ending  December  31,  2005.  On  December  1,  2005,  Alice  Harford,  the   engagement partner,  calls  you  into  her  office  to  explain  that  the  audit  will  need  to  begin   in  early  January  2006,  because  OVS’s  bank  is  eager  to  see  the  audited  financial statements. “I  would  like  you  to  prepare  the  audit  planning  memo  for  the  OVS  audit.  OVS  has   experienced  some  changes,  and  I  want  to  make  sure  we  consider  those  in  our audit plan.  The  controller  of  OVS  has  faxed  us  the  interim  financial  statements  for  the  11   months  ended  November  30,  2005.  Net  income  before  taxes  for  the  11-­month period  is   $5,547,000.These  should  help  you  in  your  audit  plan. “I  met  with  Victor  Ziegler,  the  controlling  shareholder  of  OVS,  a  few  months  ago  and  he   told  me about

OVS’s  new  directions.  Here  are  my  notes  from  that  meeting  (Exhibit  I). “I  also  met  with  OVS’s  Chief  Information  Officer,  Nick  Nightingale.  He  provided  a   description  of OVS’s  expansion  during  2005  into  the  Internet-­based  DVD  rental  market   through  a  program  called  Movies  By  Mail.  Here  are  my  notes  from  my  meeting  with  Nick   (Exhibit  II).  Please  review  them  and  provide  your  recommendations  for  improving  the   system.  I  will  pass  on  your  comments  to  our  Information  Technology  (IT)  partner so  that   she  can  include  them  in  a  report  she  is  preparing  for  Victor.  Victor  has  asked  our  IT   partner  to  meet  with  him  to  discuss  the  information  technology  issues related  to  the   Internet-­based  rental  system.     

Required:  

The  engagement  partner  asks  you  to:   

A).   Identify  risks  at  the  overall  F/S  level  (OFSL).  Be  sure  to  state  what  the  risk   is  and  why  it  is  a  risk  (what  +  why).   

B).   Based on  your  risk  assessment,  consider  what  type  of  audit  approach   should  be  taken   

C).   Assess  materiality  for  the  engagement   

D).   Identify  the  account-­specific  risks.  Be  sure  to  state  what  the  risk  is  and  why   it  is  a  risk  (what  +  why).   

E).   Develop  procedures  to  test  each  risk.  Consider  using  the  VOOP  acronym.   

F).   Identify  the  control  issues  with  the  new  IT  system  –  be  sure  to  identify  the   weakness,  the  implication  and  then  provide  a  recommendation.

Answer rating: 100% (QA)

A The main risks that have been identified Overlook Video Stores Inc are depicted as follows Problems in accommodating the refusal of payment which generates from no late fees payment scheme Problems ... View the full answer