Mr. Pucker operates a sports memorabilia store in a Jackson Square located in Hamilton Ontario. A five year lease was signed with the mall operator in 2015. The agreement stipulates that Mr. Pucker must remit monthly 2% of prior month sales on the 15th day of the following month.

Mr. Pucker operates a sports memorabilia store in a Jackson Square located in Hamilton Ontario. A five year lease was signed with the mall operator in 2015. The agreement stipulates that Mr. Pucker must remit monthly 2% of prior month sales on the 15th day of the following month.

Management of the mall would like to get some assurance that the monthly sales reported by Mr Pucker are being reported accurately. You are an Audit Manager who works for the firm Lee and Ross LLP. Ms. Lee has approached you to address a series of questions related to this engagement.
Required

1. Discuss 3 different types of reports that would be appropriate to meet the needs of

the management of the mall e.g. clearly explain why the report would be suitable. (9marks)

2. Recommend a report that would be most suitable given the facts in the question. (3 marks)

3. Discuss whether or not the report would be a general purpose report or a special purpose report. (2 marks)

4.   Outline the considerations when accepting the engagement for the report that you recommended in

part 3. (6 marks)

 

 

 

answer:

(1)

(1) Report on Daily Sale Data

(2) Report Report on Sale Price Fixed For Customer

(3) Report on Daily Collection

(2) most Suitable Report is Report on Daily Collection and Quantity Wise Sale Data

(3) Yes Reports can be for General purpose and For Special Purpose . Like Sale Price List is For General purpose But Sales Monthly Data is For Special Purpose

(4)

Once a firm has decided to go ahead with an audit engagement, it must comply with the requirements of ISA 210, Agreeing the Terms of Audit Engagements. ISA 210 was revised as part of the International Auditing and Assurance Standards Board’s Clarity Project, with new requirements to perform specific procedures in order to establish whether the preconditions for an audit are present.

ISA 210 defines preconditions for an audit as follows: ‘The use by management of an acceptable financial reporting framework in the preparation of the financial statements and the agreement of management and, where appropriate, those charged with governance to the premise on which an audit is conducted’. This means that the auditor must do two things. First, the auditor must determine the acceptability of the financial reporting framework to be applied in the preparation of the financial statements. This includes evaluating whether law or regulation prescribes the applicable financial reporting framework, considering the purpose of the financial statements, and the nature of the reporting entity (for example, whether a listed company or a public sector entity). In most cases this will simply be a matter of confirming with the client that the financial statements will be prepared under International Financial Reporting Standards, or other national reporting framework.

Second, the auditor must obtain the agreement of management that it acknowledges and understands its responsibility:

  • For the preparation of the financial statements in accordance with the applicable financial reporting framework.
  • For internal controls to enable the preparation of financial statements which are free from material misstatement, whether due to fraud or error.
  • To provide the auditor with access to all information necessary for the purpose of the audit.

In relation to the final bullet point, if management impose a limitation on the scope of the auditor’s work in the terms of a proposed audit engagement, the auditor should decline the audit engagement if the limitation could result in the auditor having to disclaim the opinion on the financial statements. The engagement should also be declined if the financial reporting framework is unacceptable, or if management fail to provide the agreement outlined above.

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