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Auditing Project for EastJet: Planning, Risks, Materiality, Audit Program, Documentation, and Audit Report

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Added on  2019-09-16

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This auditing project for EastJet covers planning analytical review, audit risks, audit approach, planning materiality, evaluation of audit work, PPE audit program, documentation importance, and expected audit report. The project includes extracts from management financial statements, notes from the meeting, and notes regarding the accounts receivable and property, plant and equipment work performed by the junior auditor. Course code and college/university not mentioned.
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NaduAuditing Project Due December 5th Carter & McLean, a Halifax accounting firm, has just taken on the audit of EastJet, a small airline providing private charter service that began operations in 2007. The airline is owned by Dave Wilson and Ron Joyce. The previous auditor has resigned because of poor health. You are an audit senior with Carter & McLean and have been asked to work on the audit. EastJet uses rented facilities at Halifax International airport. It has purchased three of its airplanes and is leasing six other planes. It employs six pilots full time and has a database of pilots that can be called if additional flights are required at any given time. EastJet has done well since it began operations but Carter and McLean are concerned about the profit for the first six months of this year. In addition, two of EastJet’s planes have been grounded because of faulty electrical connections. The warranty has expired on these planes. You held an audit planning meeting with Dave Wilson, Ron Joyce and Bill Carter, the partner. You were provided with the interim financial statements for the first six months of the current year along with the prior year audited statements (Appendix 1). Your notes for the meeting are inAppendix 2.A junior accountant from your office has done work on the accounts receivables and property plant and equipment. The work done is documented in Appendix 3.Required:1.Perform the planning analytical review for the financial statements of EastJet, analyzing the key movements. Include supporting calculations. (10 marks)2.Using the audit notes that you took, identify the audit risks and explain how each audit risk could result in a material misstatement in the financial statements. Design the audit approach for each significant audit risk identified. Present your answer in a table with column one identifying and explaining the risk and column two indicating the audit approach. (20 marks)3.Calculate planning materiality for the 2016 fiscal year-end audit. Provide both quantitative and qualitative analysis supporting your figure for preliminary materiality. (5marks)4.Evaluate the audit work done by the audit junior on the accounts receivable and property plant and equipment and outline additional procedures that should be performed by the audit team on future work in this area.(20 marks)
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Nadu5.Prepare the property, plant and equipment (PPE) audit program that will be used by Carter & McLean accounting for the December 31, 2016, fiscal year-end audit of EastJet.(20 Marks)6.Discuss the importance of documentation in the audit file and identify which parts of the audit file require documentation.(10 marks)7. Assume the 2016 fiscal year-end audit of EastJet is completed and that Carter and McLean Accounting has determined that the financial statements of EastJet are presented fairly, in all material respects, except for the area of capital leases. Capital leases are material. Your audit work indicated the two capital leases should be accounted for as capital leases; however, EastJet did not want to do this. The amount is material but not pervasive to the financial statements. Draft the expected audit report that will be issued by Carter and Mclean Accounting for this engagement. Assume that the financial statements of EastJet are prepared under one of the two general purpose accounting frameworks used in Canada.(15 marks)
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NaduAppendix 1: Extracts from management financial statementsIncome statement ExtractsNotesSix months ended June 30, 2016Year ended December 31, 2015Revenue1411,998642,639Operating Expenses2367,052572,041Other income and expense3(3,085)(6,654)Income before tax41,86063,944Notes:1.Revenue is evenly spread throughout the year. 2.Operating expenses include repairs and maintenance expense of property, plant and equipment of 151,686 for the six months ended June 30, 2016 and 179,438 for the year ended December 31, 2015. 3.The amount for the six months ended June 30, 2016 includes a loss on disposition of equipment. Proceeds on sale of equipment was $22,500.
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