Problem
Case: MEGA SET COMPUTERS
Today is August 6, 2022 and you, CPA, are a manager at Cogswell & Jetson LLP, a regional accounting firm in Victoria, British Columbia. You have recently been assigned to the audit engagement of Mega Set Computers (MSC) after the senior accountant, Sembi, was let go as part of a staff reduction plan. The engagement partner, Dani Li, asked you to meet with her before you take over the audit. Dani explained: "I think Sembi has completed most of the MSC audit, but the audit working paper file has not been reviewed yet. He told me that he left a number of notes in the file about outstanding work. Please discuss the appropriate accounting treatment for the Alberta Dinosaur Museum (ADM) arrangement and the discontinuation of the electric dog product. Also, you should assess the $100,000 goodwill balance. Please describe any issues that will impact completion of this audit. I also need you to identify any problems with work completed by Sembi, key audit risk areas and any procedures that still need to be performed to get this audit done. "I have a meeting with MSC's controller, Jane Melton, later this week to provide a progress update and inform her of the staffing change. I need to let her know of any significant issues she should be aware of. Finally, she told me she will provide the percentage of completion revenue adjustment calculation when we meet, which was not ready when Sembi did the fieldwork. I would like you to develop an independent estimate of this balance so we can compare the amount to Jane's calculation." Dani hands you the audit file prepared to date, excerpts of which are included in Appendix I. She also gives you the draft consolidated financial statements, before the revenue recognition adjustments (Appendix II)
APPENDIX I (continued) EXCERPTS FROM AUDIT FILE PREPARED BY SEMBI Revenues -
MSC has a policy of recognizing revenue using the percentage of completion method at each contract milestone. Payment is always due on completion of the contract, and uncollectible accounts have always been nominal. Sales agreements showed three fixed-price contracts were incomplete at year-end. Total contract price for these were as follows:
ScienceBC $ 25,000
Museum of Cascadia 19,000
Parks Canada 125,000
Task
Describe any issues that will impact the completion of this audit. Identify any problems with work completed by Sembi, key audit risk areas and any procedures that still need to be performed to get this audit done.