The below-attached file need to be done

Unit 6 Integration Case Information

You, Yorkville University CPA student, are a senior accountant at BUSI 3443 LLP, a mid-size firm specializing in the audit of smaller, high-tech companies. You have recently been assigned to a new client of the firm, Big Bang Inc. (BBI), a publicly-traded Canadian company listed on the TSX Venture Exchange that has been in business for 15 years. BBI dedicates itself to serving the scientific community by providing powerful, easy-to-use, and affordable scientific software. The company’s year-end is December 31.

Today is February 27, 2020. Your audit manager, Diane Gawtree, has called a meeting to discuss the work that needs to be performed before audit fieldwork can begin in two weeks:

“YU CPA student, I could really use your help in preparing a preliminary audit plan. I have already performed the initial client acceptance procedures and I met with the former auditors last week to review the audit working papers from the prior year. I did not note any areas of concern.

However, I did not have time to perform an overall risk assessment for this audit or to think about materiality yet.

“I also met with Lisa Smith, the CFO of BBI, earlier this week and a summary of our discussion is in Exhibit I. Can you please prepare a memo analyzing any new accounting issues that resulted from 2019 events that we should be keeping an eye for during our audit? As you know, BBI reports under International Financial Reporting Standards.”

EXHIBIT I

Summary of Discussion With Lisa

Knowledge of the business

BBI helps scientists deal with huge amounts of data by providing software that will perform statistical analysis and identify trends. Science labs purchase the shell of the program, and then purchase individual modules to match the different types of statistical analysis they want to perform. The shell, which is required before any modules can be purchased, costs $1,000. Each module costs anywhere from $500 - $5,000 depending on the complexity of the analysis required. BBI has done very well with this business model, with profit before tax of approximately $400,000 in 2018 and preliminary profit before tax of $550,000 for 2019. Their sales tend to be very even throughout the year.

That said, the industry has many players and is highly competitive, as labs have limited grant funds to spend and are always looking for the fastest software, and therefore will switch providers if the pricing is more attractive or the software is more powerful.

Events occurring in 2019

Telephone support program

Up to 2019, no companies in the industry offer post-sales support to labs. In an attempt to provide better client service and in order to remain competitive, BBI introduced a new aspect to their modules. Starting January 1, 2019, when a lab purchases a module, they now receive a three-year helpline support service. The service provides them with access to a 1-800 hotline they can call 24 hours a day, 7 days a week in order to seek advice from a qualified statistician.

In order to cover the costs of running the helpline, BBI increased their pricing on the modules by 10%. As a result, BBI had sales of $1,430,000 this year, representing a 20% increase in their revenues compared to the prior year, so it was clear that the market liked the new feature and was willing to pay extra for it. Had the same amount of modules been sold in the prior year, sales would only have been $1,300,000. At year-end, the full $1,430,000 was received and recognized as revenue for the year.

Module Nuclear

At the request of several clients, BBI started “Module Nuclear”, a project on the development of a module specifically for nuclear plants. There was a need for software that would analyze data coming from nuclear reactors in real time in order to continuously assess their condition. The timeline related to this project is as follows:

The project team expects the module to be finished within the first three months of 2020. The budget for the remainder of the project is $30,000; $25,000 will be spent on testing the software with various sets of actual client data, and $5,000 will be used for advertising and hosting a client reception to unveil the new module. BBI has capitalized all expenses incurred on the project to date.

Genetic Network Module

BBI’s Genetic Network Module has been one of the company’s top 20 modules in terms of sales. The company spent approximately $240,000 in early 2018 on the development of this module, and has been amortizing it over its estimated useful life of 3 years. In 2019, a competitor, Beta Gamma Corporation (BGC) came up with a stand-alone software which is very similar to BBI’s module in terms of functionality. It can perform the data analysis in half the amount of time, although not with as much accuracy. When the BGC product came out, BBGC offered to purchase BBI’s Genetic Network Module for $50,000. Since the introduction of the competitor software, BBI’s sales of the Genetic Network Module have declined by 90%. At the end of 2019, the net book value of the deferred R&D costs related to this project is $95,000.