You have recently been hired as the manager of the internal audit department of Vroom Vroom Inc
Question:
You have recently been hired as the manager of the internal audit department of Vroom Vroom Inc.
Your first assignment is to investigate certain aspects of a recently acquired division called Scooter Ltd (“Scooter”).
Scooter is a Canadian company that is an importer of scooters and other low powered motorcycles.
Certain aspects of Scooter’s business have changed due to a change in economic conditions over the past 12 months. Management of Scooter advised you that Scooter’s business, which experienced rapid growth over its first five years in operation, has slowed significantly during the last year. Initially, sales of scooters were boosted by Canada’s good economic conditions and solid employment growth, coupled with rising gas prices.
Consumers needed transportation to get to work and the high gas prices made the relatively cheap running costs of scooters seem very attractive. In addition, the low purchase price of a small motorcycle or scooter, at between $3,000 and $8,000, meant that almost anyone who had a job could obtain a loan to buy one.
However, management at Scooter informed you that the sales of small motorcycles and scooters have slowed significantly and that all importers of these products, not only Scooter, are being adversely affected. The onset of an economic recession started during the Covid–19 pandemic has restricted employment growth, and those people that still have jobs are less certain of continued employment.
In addition, the slowdown in the world economy has caused oil prices to fall, further reducing the demand for the type of economical mode of transportation.
You also discovered that, due to the global financial crisis, the finance company used by Scooter’s customers to finance the purchase of scooters and motorcycles has announced that it will not be continuing to provide loans for any type of vehicle with a purchase price of less than $10,000.
REQUIRED
- List 5 questions you would want to ask management based on information in the case.
- For each of the 5 questions you are asking, explain why they are important for you to ask? What risks are you concerned about? Please “explain” why….DO NOT JUST STATE A RISK.
Refer to Lesson 3 for some of the types of risks we discussed in class. (see Lesson 3 slides 20 to 32). There may be others that are not listed or identified.
- For each of the 5 questions you are asking management, state how might your findings potentially impact your audit work if a risk is identified. In other words, assume that a potential risk is found to exist from the response you received to your questions from management. Identify an audit procedure that you would use to get more information about the existence of the possible risk.
Intermediate Accounting
ISBN: 978-0077400163
6th edition
Authors: J. David Spiceland, James Sepe, Mark Nelson