Scribd Logo
Upload

Welcome to Scribd!

  • 502 views

    Assurance PC 1 PDF

    Uploaded by

    rui zhang
    The audit planning memo summarizes the audit of Razor. Analytical procedures and some substantive testing will be used due to time pressures. Tests will include confirming account balances to verify the current ratio covenant with the bank. There are concerns about Razor's ability to continue as a going concern given its lack of cash, risks of losing a major customer, and upcoming debt repayments. The audit will evaluate management's assumptions and confirm balances with creditors to assess the going concern risk.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Assurance PC 1 PDF

    Uploaded by

    rui zhang
    502 views2 pages
    The audit planning memo summarizes the audit of Razor. Analytical procedures and some substantive testing will be used due to time pressures. Tests will include confirming account balances to verify the current ratio covenant with the bank. There are concerns about Razor's ability to continue as a going concern given its lack of cash, risks of losing a major customer, and upcoming debt repayments. The audit will evaluate management's assumptions and confirm balances with creditors to assess the going concern risk.

    Original Title

    Assurance_PC_1.docx.pdf

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The audit planning memo summarizes the audit of Razor. Analytical procedures and some substantive testing will be used due to time pressures. Tests will include confirming account balances to verify the current ratio covenant with the bank. There are concerns about Razor's ability to continue as a going concern given its lack of cash, risks of losing a major customer, and upcoming debt repayments. The audit will evaluate management's assumptions and confirm balances with creditors to assess the going concern risk.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    502 views2 pages

    Assurance PC 1 PDF

    Uploaded by

    rui zhang
    The audit planning memo summarizes the audit of Razor. Analytical procedures and some substantive testing will be used due to time pressures. Tests will include confirming account balances to verify the current ratio covenant with the bank. There are concerns about Razor's ability to continue as a going concern given its lack of cash, risks of losing a major customer, and upcoming debt repayments. The audit will evaluate management's assumptions and confirm balances with creditors to assess the going concern risk.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    Assurance Case 1

    To: Lionel Majors

    Fr: CPA

    Subject: Razor Audit

    Uses IFRS

    Complete audit planning memo:

    Given the time pressure on the audit completion tests performed will be using a combined approach.
    Analytical procedures will be used to determine if controls are effective and can be relied upon in the
    audit. If controls can be relied upon this would reduce the substantive testing required and reduce
    overall audit time to meet needs of the client. Some tests/procedures to be performed given the current
    information are:

     Obtain confirmation of accounts/assets relating to the debt covenant for the bank which is the
    current ratio. This would include current assets and current liabilities. To verify these balances
    the audit should:
    o Examine purchase orders and confirm physical existence of inventories.
    o Confirm balance of AR through confirmations.
    o Verify balance of loans through confirmations to bank.

    Important for timely statements for bank and major suppliers. Pressure to maintain current ratio.

    Audit of Accounts Receivable and AFDA

    -Patent for $4million amortized over 20 year useful life

    -check is major capital purchases 180 days after q3 were sent to lender

    Available a total of 12m of

    -750k line of credit

    -4m demand bank loan

    -7.25m long-term debt

    Audit issues:

    Going Concern:

    There is a need to address the going-concern assumption for Razor as the following going concern
    assumptions exist:

    This study source was downloaded by 100000765562598 from CourseHero.com on 05-05-2023 17:46:50 GMT -05:00

    https://www.coursehero.com/file/103000676/Assurance-PC-1docx/
     Razor has no cash under current assets in its statement of financial position for 2020 or 2021.
    This would make it extremely difficult for Razor to repair its debts. The loan from the bank
    stipulates that three quatres of Razor falling below the 1:1 current ratio would allow the bank to
    immediately demand the loans be repaid.
     Razor’s largest customer has short paid invoices leaving $225,000 still uncollected after 180 days.
    Other customer of Razor now producing steel in house with no indication of orders from Razor in
    the future. Likely impact on future revenues and health of company.
     Mandatory repayment of 500k loan from parent company within 6months that Razor may be
    unable to afford to lack of cashflow. Another 1.5m is also due to repaid to parent company in
    next few years which will also hurt company cashflow and ability to pay other debts from bank.
     Parent company has indicated that no more financial support will be provided which means
    Razor’s only source of funding is likely from the bank with debt covenants.
     Razor is close to falling below its required current ratio of 1:1 since it currently sits at 1.014 as
    shown in exhibit 1. This increases the risk of Razor violating the debt covenant and being forced
    to repay the loans. Razor also in the last fiscal year violated the current ratio covenant in two
    quatres, requiring it to get approval for 180 days for capital purchases from the lender.

    In response to the listed indicators above the following procedures should be followed:

     Obtain support about future assumptions for profits by management. This should include the
    market information used to make the projections for profits. As well as any confirmations of
    contracts which pertain to future sales that could impact predicted revenue.
     Review the minutes from any board of directors meetings.
     Send confirmation to creditors to confirm the balance of any outstanding liabilities. This would
    primarily be concerning the bank for Razor which holds the agreement with the current ratio
    covenant.

    If Razor proves to not be a going concern its balances should be stated at liquidation values. If materiality
    uncertainty exists for going concern, it should be disclosed in the notes to FS with the material
    uncertainty related to going concern paragraph in the audit report.

    This study source was downloaded by 100000765562598 from CourseHero.com on 05-05-2023 17:46:50 GMT -05:00

    https://www.coursehero.com/file/103000676/Assurance-PC-1docx/
    Powered by TCPDF (www.tcpdf.org)

    You might also like