Analysis of Movies R Us Audit Report and Financial Statements

This report analyzes the audit of Movies R Us, focusing on the challenges faced due to the closure of stores and the transition to online services. The audit addresses key issues such as going concern, revenue recognition, and material misstatements. The report highlights the need for a revised approach to auditing, considering the impact of the reduced number of physical stores and the introduction of the FlicksNet web-based application. Furthermore, it delves into the implications of website development costs, inventory obsolescence, and the importance of proper financial statement disclosures. The report also emphasizes the increased risk of material misstatement due to the changes in the company's operations and the necessity of accurate record-keeping for auditing purposes. References to revenue recognition and material misstatement principles are also included to support the analysis.

ADVANCED EXTERNAL
AUDITING

TABLE OF CONTENTS
MEMO to Engagement partner ..................................................................................................1
REFERENCES................................................................................................................................3

MEMO to Engagement partner
From : The CA, Audit senior
date : 31st dec 2011
Re : Work need to do and different in Audit from previous year
As per the meeting held with Brad Sachmitt, the President of Movies. It is identified that
there are various issue with the operations taking place in Movies R Us as the company have
closed 40 out of its 50 stores due to decrease in the demand DVD rentals. Due to this there is
change in the number of stores which are now 10. The decline in the demand of the DVD rentals
have affected on the going concern of the firm as the 40 stores does not exist now. Moreover, the
company need to make have audit of materialist thing in order to maintain the going concern of
company.
Also, The company need to have better understanding of the e- business or Flicksnotes. It
is required to control in IT system which is different from the past year Audit as there was no e-
business in the previous year and the company have more risk in this business. Another issue in
audit will be addressed due to revenue recognition concept the revue is recorded when it is
earned which means the choice provide by Movies R US which is that the customer can pay an
annual fee which allows them unlimited download for a year is recognised when it will be
earned. Furthermore, due to discontinued operation the company will have to change their
preparation of financial statement, valuation and their disclosure procedure as in previous year
the company have to record the transaction for 50 stores whereas now it will record for 10 stores.
The issue identified is related to accounting for website development as the Movies R US
is implementing FlicksNet a web based application which allows customers to download Movies
will require the accounting for its development and proper auditing is required for this
implementation. The company has the risk whether the website will work or fails. Moreover, the
other risk which include inventory obsolescence and materiality and planning have their record
in the audit report. The materialistic thing must be included in the financial statements whereas
proper planning must be made liquidation of assets, restructuring etc.
The assessment of material misstatement is higher in this years due to implementation of
web – based application. It is required that proper disclosure of every aspect of accounting is
required. The company have to account for its sales transaction after implementing FlicksNets as
per the revenue recognition principle (Revenue recognition principle, 2018). Also, the company
have to consider the risk of material misstatement which occurs due to omission of material
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MEMO to Engagement partner
transaction from financial statement (Risk of material misstatement, 2018). This risk is higher
than compared to previous years as there is change in the operation through use of web- based
application. The Movies R US is required to record all the transaction taking place from the
operation for maintaining proper records during auditing.
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MEMO to Engagement partner
REFERENCES
Online
Revenue recognition principle. 2018. Available through
:<https://www.accountingtools.com/articles/2017/5/15/the-revenue-recognition-principle>
Risk of material misstatement . 2018. [Online]. Available through
:<https://www.accountingtools.com/articles/2017/5/13/risk-of-material-misstatement>
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