Hsc Audit Planning Memo

HSC Audit Planning Memo

Introduction:

Our firm has performed HSC’s annual audit since 2004. Given this information, I have reason to believe there is minimal engagement risk for this particular client as well as minimal inherent risk. In previous years, the framework used for HSC was ASPE; recently the client voiced their intention to go public in the near future, so it is important we use the appropriate framework of IFRS.

Financial Statement Users:

Users of HSC’s financial statements include: The Bank of Toronto, other creditors, and their suppliers.

Risks:

There are several potential risk areas identified upon review of the notes from the meeting with HSC’s CEO Min Quan, as well as the notes from the meeting with HSC’s Chief Engineer. These risks include: opening balances, debt/equity covenant, warranty liabilities, new technology development costs, revenue recognition, accrual of VFL savings revenue and the pending rent-to-own offer.

Materiality:

 Users: As mentioned above the main financial statement users are: The Bank of Toronto, other creditors, and their suppliers.

 Base: 1-2% of total assets, (creditors/suppliers) 2-5% of shareholder’s equity (Bank of Toronto)

 1% of total assets, and 2% of shareholder’s equity are appropriate materiality rates as these accounts could have a strong influence on the decision-making of the users

 1% Total Assets = $29, 810 2% Shareholder’s Equity = $20,140

Risk Assessment/Financial Statement Risks:

Considering the opening balances there is a valuation risk with regards to the amounts as this is a first-time audit of the client for myself.

Considering the debt/equity accounts there is also a risk of valuation with