Question: Dark shadow Ltd, until now a privately-held family-run NZ corporation. Sells deck awnings. The CEO and primary shareholders-Thomas Shadow-contracted with you to audit the financial statements for the period ended 31 March 2010, which will be included in a prospectus produced to attract 1,000,000 capital from a public share issue. They have been operating since 2000,during which time they employed an account (2002) to maintain records, and to prepare financial statements, budgets and management reports
1. What might be one important issue for you to raise in the engagement letter? Why?
2. New Equipment, purchased for cash in April 2009, is booked at 200,000 but (unknown to you) has a market value of 70,000. Thomas intentionally misstated the accounts by authorising the following adjusting entry: Dr 130,000 Equipment Cr 130,000 sales. What Analytical procedure that would reveal this particular misstatement? Why?