WrkOnln is a company that provides a cloud-based platform which allows people to work remotely in teams. Their year end is September 30. The company was founded in 2010 in Montreal, where it is currently headquartered. The company is private and has been since its inception. 70% of the company is owned by venture capitalists, and 30% is owned by the founders and employees of the company.

In the Summer of 2021, the company was approached by several private equity funds as well as large technology companies who were interested in purchasing the company from its current owners. The board decided that selling the company to one of the prospective buyers would be the best option for the company. To ensure that the potential buyers have the best information regarding the company’s finances, in September of 2021 WrkOnln hired ACCO360 which is an audit firm in Montreal with a lot of experience auditing technology companies.

You are a partner at ACCO360 who is responsible for the upcoming audit of WrkOnln. You have reached out to OLD CPA, the predecessor auditor of WrkOnln. Per your communication with Jane Doe, the partner at OLD CPA responsible for all previous audits of WrkOnln, you learned that accounting at the company was done very well, there were very few errors uncovered, and they were all quickly fixed by the CFO, who seemed overall very interested in making sure that accounting was done correctly. The company had strong controls over financial reporting, as well an overall attitude of compliance with rules and ethical behavior, which, as Jane Doe thought, was the main reason for the high quality of their financial reporting.

WrkOnln has made several acquisitions over the years, and thus has several subsidiaries that are located in Canada, the US, and Europe. These subsidiaries are companies that provide similar services as WrkOnln. The latest acquisition was made in 2019 and was a company in Germany. As a result of international operations, the company is subject to stringent laws in regulations in multiple countries (i.e. data protection, privacy, e-marketing).

Statement of Financial Position
Fiscal Year				2021	2020
Cash				170	120
Accounts Receivable				5	4
PPE				3	3
Goodwill				90	90
Total Assets				268	217
Accounts Payable				70	50
Other Current Liabilities				40	28
Total Liabilities				110	78
Shareholders' Equity				158	139
Statement of Comprehensive Income
Fiscal Year				2021	2020
Revenue				150	110
Cost of Revenue				30	18
Gross Profit				120	92
Research and development			45		25
Selling, general, and administrative				90	70
Other expenses				15	18
Net income				-30	-21

Guidelines to calculate materiality:

– 3% to 7% of net income before taxes.

– 1% to 3% of total assets.

– 3% to 5% of shareholders’ equity.

– 1% to 3% of revenue.

– 1% to 3% of expenses.

– 0.5 to 5% of gross profit.

1) Using the guidance and the financial statements above, propose and justify an assessment of the overall materiality level for the 2021 audit of this client.

2) From the elements of the case, propose and justify an assessment of inherent risk for this client (HIGH / MODERATE-HIGH / MODERATE / MODERATE -LOW / LOW) based only on identifying and assessing overall financial statement risks (in other words, you do not need to assess risk of material misstatement at the assertion level at all)

3) What is going to be the planned detection risk (HIGH / MODERATE-HIGH / MODERATE / MODERATE -LOW / LOW) and the quantity of evidence auditors will have to collect for the audit of this client?

Answer rating: 100% (QA)

1 The overall materiality level for the year 2021 is 1648 2 The inherent risk in this client case is moderately low 3 The planned detection risk is hi... View the full answer