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Introduction Brunswick Investments Limited In this elective module you will be playing the role of Kerry Piva, CPA. Kerry is newly hired assistant...
Introduction — Brunswick Investments Limited In this elective module you will be playing the role of Kerry Piva, CPA. Kerry is newly hired assistant manager with Murray and Chan LLP. Murray and Chan is a public accounting firm with offices throughout Canada. The firm offers a wide range of services in the areas of accounting, audit, taxation, and business consulting. The firm's clients range from small proprietorships to large public companies. Murray and Chan were appointed the auditors of the Brunswick group of companies in July 2016. The engagement partner is Michele Maynard. The previous auditors, Black and White LLP, had to resign from the engagement due to an independence conflict. It's an exciting role to play and you are keen to get started with your second week on the engagement. Today is January 10, 2017, and you have been called into a meeting with Michele Maynard, the engagement partner. Michele: Welcome Kerry. I hope you received an insightful orientation last week over at Brunswick. Kerry: It was good to meet senior management and the chairman of the board. The information that they provided gave me a good overview of the grou of companies. Michele: Fantastic. Let me bring you up to date on where we see you taking a lea role. As you know, there are a number of companies in the associated group. You will be primarily responsible for the audit of Pembroke Pulp and Power Limited (Pembroke). Some interim work was completed last fall, in addition to some of the year-end audit planning. The assistant manager responsible for this engagement left the firm just before Christmas. We would like you to step in and lead the Pembroke audit going forward. Kerry: This sounds like a great opportunity. Where should I start? Assurance — Week 1 Immersive Case Introduction — Brunswick Investments Limited 2 / 2 Michele: This week I'd like you to review the overall financial statement level risk assessment and identify ways for us to address that risk. Kerry: Okay, I can do that. What about looking at risk at the assertion level? Michele: Let's leave that aside this week and come back to it next week. In addition, I'd like you to determine materiality. I believe you were provided draft financial statements from your visit last week. I would also like you to perform the preliminary financial statement analytical review as part of the planning process. This work will really help us form an overall assessment of the entity and audit risk. It will guide our audit plan as we move forward through the audit in the coming weeks. Kerry: So we are focused on the big picture this week; I get it. Michele: I'll send you an email summarizing our discussion and providing you with the current files. You leave and return to your office to get to the matters at hand. You sit down at your desk to review the information you've received from your orientation as well as the additional information provided by the partner.
I would like you to complete the assessment of overall financial statement level (OFSL) risk. Your analysis should include at least:
- four factors impacting general/inherent risk.
- two factors impacting control risk and
- three factors impacting fraud risk.
Please be sure to explain why each risk factor increases or decreases OFSL risk. Also, it is important to have a balanced risk assessment.
I have also included a summary of the accounting systems to help you with this. You should review the following background documents if you need additional information:
- Ex_Business_Risks
- Ex_Company History
- Ex_FS_Pembroke
- Ex_Industry_Briefing
- Ex_Overview_Pembroke
- Ex_Convo_Howard_Smith
- Ex_Convo_Lou_White
- Ex_Convo_Jeffrey_McBain
Finally, make sure you conclude on OFSL risk.
Your response should not exceed three pages.
Competencies:
4.1.1Assesses the entity's risk assessment processes (Level A)4.1.2Evaluates the information system, including the related processes (Level A)4.3.5Assesses the risks of the project, or, for audit engagements, assesses the risks of material misstatement at the financial statement level and at the assertion level for classes of transactions, account balances and disclosures. (Level A)
As discussed, please evaluate materiality for the Pembroke audit engagement. Please consider all four levels of materiality. Consider both quantitative and qualitative factors in your analysis.
Your response, not including Excel, should not exceed two pages.
Competencies:
4.3.4Assesses materiality for the assurance engagement or project (Level A)
Complete the financial statement analysis for the Pembroke engagement by interpreting the ratio calculations provided and preparing a trend analysis. I'm attaching our financial statement analysis template as well as an Excel file with the necessary calculations. You only need to address the ratios and trends in the template that have not been completed yet.
In your analysis be sure to complete the following:
- discuss the correlation of accounts
- include identification of the accounts and assertions affected; and
- provide specific audit procedures to respond to risk factors identified.
You should be able to follow the template provided.
Matt Still, the new controller at Pembroke, sent over a summary of key information that he thought would help us. I have attached it here.
Write a memo
Competencies:
4.3.5Assesses the risks of the project, or, for audit engagements, assesses the risks of material misstatement at the financial statement level and at the assertion level for classes of transactions, account balances, and disclosures (Level A)4.3.6Develops appropriate procedures based on the identified risk of material misstatement (Level A)
