Nadu. Auditing Project. Due December 5th. Carter & McLe

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NaduAuditing Project Due December 5thCarter & McLean, a Halifax accounting firm, has just taken on the audit of EastJet, a smallairline providing private charter service that began operations in 2007. The airline is owned byDave Wilson and Ron Joyce. The previous auditor has resigned because of poor health. You arean 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 itsairplanes and is leasing six other planes. It employs six pilots full time and has a database ofpilots 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 theprofit for the first six months of this year. In addition, two of EastJet’s planes have beengrounded 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 currentyear 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 propertyplant and equipment. The work done is documented in Appendix 3.Required:1.Perform the planning analytical review for the financial statements of EastJet, analyzingthe key movements. Include supporting calculations. (10 marks)2.Using the audit notes that you took, identify the audit risks and explain how each auditrisk could result in a material misstatement in the financial statements. Design the auditapproach for each significant audit risk identified. Present your answer in a table withcolumn one identifying and explaining the risk and column two indicating the auditapproach. (20 marks)3.Calculate planning materiality for the 2016 fiscal year-end audit. Provide bothquantitative 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 propertyplant and equipment and outline additional procedures that should be performed by theaudit team on future work in this area.(20 marks)
Nadu5.Prepare the property, plant and equipment (PPE) audit program that will be used byCarter & 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 theaudit file require documentation.(10 marks)7.Assume the 2016 fiscal year-end audit of EastJet is completed and that Carter andMcLean Accounting has determined that the financial statements of EastJet are presentedfairly, in all material respects, except for the area of capital leases. Capital leases arematerial. Your audit work indicated the two capital leases should be accounted for ascapital leases; however, EastJet did not want to do this. The amount is material but notpervasive to the financial statements. Draft the expected audit report that will be issuedby Carter and Mclean Accounting for this engagement. Assume that the financialstatements of EastJet are prepared under one of the two general purpose accountingframeworks used in Canada.(15 marks)
NaduAppendix 1: Extracts from management financial statementsIncome statement ExtractsNotesSix months endedJune 30, 2016Year ended December31, 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 andequipment of 151,686 for the six months ended June 30, 2016 and 179,438 for the yearended December 31, 2015.3.The amount for the six months ended June 30, 2016 includes a loss on disposition ofequipment. Proceeds on sale of equipment was $22,500.
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