Comprehensive Audit Report: Second Cup Coffee Co Financial Analysis

This report presents an audit of Second Cup Coffee Co, a Canadian coffee retailer. It assesses various risks, including audit, inherent, detection, and control risks, and identifies a moderate risk of material misstatement. The audit focuses on key areas of the financial statements, such as inventory and cash, highlighting the increase in inventory and cash balances. The report suggests specific approaches for auditing these areas, including inquiries regarding consignment for inventory and confirmation of cash balances with bank reconciliation for cash management. The overall audit aims to provide insights for better risk management in future audits. The report also provides business information including market capitalization, revenue growth, and asset value of the company.

Running Head: AUDITING
AUDITING
Name of the Student
Name of the University
Author Note

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To: Ernie Kerst
From: James Kluge
Date: April, 2019
Re: Second Cup Coffee Co
The team of our company has agreed for auditing. Hence, for the verification of the financial
statements, there are certain areas that have to be looked. This audit memo will be helpful in
identifying the ongoing the current issues during the auditing of the financial statements.
Business Information
Second Cup Coffee Co is company, which is Canadian based retailer of coffee, headquartered
in Toronto. It operates their café under the trade name of Second Cup. The company’s shares
are traded on Toronto Stock Exchange under the symbol of “SCU”. Every year company has
the market capitalization of $37 million and it generates the total revenue growth of $28.06%.
The total assets value of the company is $44.7 Million in the year 2017. The company has
reported highest full year profit during four years. The company has zero-debt on their
balance sheet and they can easily maximize the returns of the capital because of lower cost of
capital.
Risk Assessment
In the auditing of the financial statements of Second Cup Coffee Co, the risk assessment was
done. Under the risk assessment, audit risk was done and it has been observed that there was
low audit risk of the company. Inherent risk of the company was high risk; it is because
forward looking statements regarding the estimates, expectations, forecasts and objectives for
which they does not give any assurances. They made statements regarding intention for using
the net proceeds of offerings for the conversion costs that are related to strategic alliance

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agreement with the National Access Cannabis Corp. and towards the potential acquisitions of
future business. Detection risk of the company is low, because the company uses recognition
method for their financial instrument. Control risk of the company is medium because the
company policy has good internal controls regarding policies and procedures of accounting,
but it is not able to detect the cost associated with operating activities of the company. Risk of
material misstatement is moderate for the company, because the company in order to cut
costs and for making the figure lucrative, they may indulge in material misstatements. Hence,
overall risk of the company is medium risk in some of the areas of the financial statements.
Risk Area
In addition, during the audit process, additional insights are given on some areas of financial
statements such as inventory and cash. Auditing these risks will give the insights for better
manage these risks for the next time the audit process occurs again.
Inventory
Inventory is increased double from last year, which can leads to obsolescence, increased costs
and decrease in profitability. The company held merchandise for resale that increases the
material risk of misstatement. The company should adopt the approach of making inquiries
regarding the consignment.
Trade and notes receivables
It has decreased as compare to previous year because the company has increased the
allowances for doubtful accounts on trade receivables, which ultimately decreases the trade
receivables and increase in material misstatements. Approach of accessing the allowance
should be done.
Cash

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Cash position of the company has increased more than triple. The approach to be adopted
should be confirmation of the cash balances, bank reconciliation, inspection of disbursements
of proper cut and final deposits.
Finally, this the audit report for Second Cup Coffee Co. Hope everyone reads this over, so
everyone is ready for the meeting on Monday.