Sunrise Solar Inc. (SSI) is a medium-sized company that is developing solar energy systems for private residences
Question:
The following is a summary of the accounts that appear in this trial balance as at year end:
ACCOUNT ............................ BALANCE DR/(CR)
Cash................................. $101,209
Accounts receivable......................... 85,019
Allowance for bad debts...................... (15,000)
Inventory, finished goods.................... 900,550
Inventory, work-in-progress.................... 44,666
Inventory, raw material...................... 67,890
Deferred development costs..................... 34,445
Property, plant, and equipment................... 3,700,990
Accumulated amortization, PPE................. . (901,108)
Patents, at cost .......................... 1,010,000
Accounts payable......................... (198,009)
Warranty provision........................ (30,000)
Shareholder loan, non interest bearing................ (11,000,000)
Share capital, common shares ..................... (1,000)
Retained earnings.............. ............. 1,364,767
Revenue............................. (812,202)
Cost of goods sold......................... 666,502
General and administration expenses................... 1,002,500
Research and development expenses................. 3,990,000
Other expenses........................... 89,990
Required:
a. Identify three factors that your firm should consider before agreeing to conduct the audit.
b. What are the economic and industry risks affecting this business? How would these risks affect the company’s financial statements and your overall audit strategy?
c. State the dollar amount you would consider an appropriate materiality level for planning this audit, giving your supporting reasons. Explain why the materiality judgment is one of the first important decisions your team must make in planning this audit.
d. List two analytical procedures you could perform using the trial balance data above (you are not required to calculate any ratios). Explain what each procedure can tell you about the risks in SSI’s financial statements. Give one example of additional information you would want to obtain to perform analytical procedures in this audit, and a reason why it would be useful.
Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
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Related Book For
Auditing An International Approach
ISBN: 978-0071051415
6th edition
Authors: Wally J. Smieliauskas, Kathryn Bewley
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