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ASPE Update and Preparing for Year End Audit/Review Presenters:

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1 ASPE Update and Preparing for Year End Audit/Review Presenters:
Leanne Mongiat, CA Trudy Snooks, CA Adams & Miles LLP Introduction of presenters: Good evening ladies and gentlemen, my name is Trudy Snooks and I am an accountant and Manager for Adams & Miles LLP. My co-presenter this evening is my colleague and fellow manager, the lovely Leanne Mongiat. We would like to thank you all for joining us this evening as we present an update for the transition to Accounting Standards for Private Enterprises and share some strategies on preparing for your year-end audit or review. We would also like to take this opportunity to thank Lin Shen for inviting us to be here this evening with you.

2 A disclaimer before we begin….
Although the presentation and related materials have been carefully prepared, neither the presentation authors, firm, nor any persons involved in the preparation and/or instruction of the materials accepts any legal responsibility for its contents or for any consequences arising from its use. Please don’t sue us!

3 Session Overview Accounting Standards for Private Enterprises (ASPE) Update Strategies for preparing for your year-end audit or review engagement There hasn’t been a lot of changes or updates since our last presentation in November. We have not seen very many corporations opt for early adoption. But our presentation will briefly go over some of the main transition points, as well as review some transition steps to consider. As an asides, new standards for NPO were released in December We are not covering them tonight but we wanted to make you aware that they are out there and Form Part III (3) of the handbook. They are effective 1 year later than IFRS and ASPE standards so you have a little more time to prepare yourself for these standards if they apply to you and your Organization. Until then, the old GAAP will continue to apply. The second part of our presentation will cover strategies for preparing for your year-end engagements which have been complied from our own experiences as well as from discussions with controllers and accountants in various corporations and organizations.

4 Review of ASPE Adoption Handbook – now located in Part II
enterprises must adopt either ASPE or IFRS for fiscal years beginning on or after January 1, 2011 early adoption is permitted Handbook – now located in Part II Retrospective - is applying a new accounting policy to transactions, other events and conditions as if that policy had always been applied ASPE or IFRS must be adopted for fiscal years beginning on or after January 1, This means your fiscal year November 30, 2011 statements are the last possible time you may see the existing GAAP standards, also the last time you may see the words “differential reporting”. As a reminder ASPE is now Part II of our Handbook. Most of the changes in the accounting standards are to be applied retrospectively, as if they has always been there. Please note however, there are several restrictions to the retrospective application, which include, but are not limited to the de-recognition of financial assets and liabilities, hedge accounting, estimates and non-controlling interest

5 Timeline Pictures are worth a 1000 words 
We have passed the Jan 1, 2011 date so you should be considering the impact of this NOW on your company. Consider meetings with: owners, management, stakeholders. Also consider the needs to meet with other users such as lenders, other related parrties.

6 ASPE Affects: Fair value Asset retirement obligations (ARO)
Election for Property, Plant & Equipment Intangibles Government payables Income taxes Opening balance sheet In addition, there are employee future benefits, stock based compensations, business combinations and joint ventures, and goodwill which will not be covered in tonight's session as they are not common to many organizations (and believe me employee benefits could be its own 3 hours session!).

7 What happens to differential reporting?
All options are included in ASPE. The standard options include - Future taxes Goodwill Consolidations - LT investments Preferred shares No longer need unanimous consent. No longer disclosed on the report or in the Notes to F/S. No longer need unanimous consent of shareholders. Which means you no longer need the differential report consent letters, nor updated letters when there is a change of ownership. Differential reporting is no longer disclosed on the face of the report, or segregated in the Notes – these are now just part of the regular SSAP.

8 Fair Value Investments traded in an active market must be recorded at fair value Investments not traded in an active market may elect to record at fair value, but the election is irrevocable For example investments traded in active market are typically shares, bonds, trust units. Fair value is obtained from market rates provided by published resources or your broker. Investments not traded in active market such as investments in private companies i.e. Maple Leaf Sports and Entertainment (MLSE) (fair value can be determined by appraisals of the company, recent sales by other private shareholders), but is not required unless you elect to value at fair value.

9 Asset Retirement Obligation
An ARO is a legal obligation (by law, statute or contract) to clean up your own mess at some future date! An ARO cost is an amount that is capitalized and increase the carrying amount of the asset when an obligation is recognized. Measurement obligation has now changed from a third-party estimate to Management’s best estimate. ARO’s exist and in the past you were often able to talk your way out of making an estimate by saying it was undeterminable if and when such an obligation would arise, or how much it would cost at that time. This is not possible under the new ASPE standards. Best estimates by management may require some legwork and research either by management or by an external consultant.

10 ARO – Cont’d Measurement – upon initial recognition the carrying amount of the asset should increase by the same amount as the liability. Subsequently this amount is expensed using a systematic, rational method. Initial recognition should be discounted using a current market risk-free rate of interest. An elective exemption is available to record ARO as of the transition date. Measurement – systematic rational method is usually over the life of the asset Initial recognition - consider using current borrowing rate Now because we are using the discounted cash flow, we will also record an increase in the obligation per year to adjust for the time value of money. Elective exemption from retrospective application is available.

11 Election to Value Property, Plant and Equipment (PPE) at Fair Value
This is a one time election. The election must be done at the transition date. This election can be done on an item by item basis. The fair value becomes the new cost of the PPE and future amortization calculations will use this new cost. Determining the FV will likely cost enterprises. This is a one time election and has to be done as of the transition date. For most this was January 1, 2010, for some this is still to come. For those that it has passed it may be difficult to prove fair value at transition. You do not need to do for each capital asset, you can review your listing of capital assets item by item and choose which one you will like to revalue. Some costs to do this will be valuators, external consultants etc. People often ask WHY entities may wish to make this election, the most common reason is to improve bank covenant requirements or borrowing limits. If you have an asset that has appreciated in value, the bank knows how valuable the asset is, why shouldn’t you be able to capitalize on that?

12 ASPE Update Cash flows statements are now required.
Definition of intangible asset changed – basically any non-refundable deposits are no longer considered prepaid Government payables – must be disclosed on face of Balance Sheet or in a Note Cash flows statements are now required. Still we have not heard what these assets will be called since there is no ppd section anymore. The expectation is that they will be called deposits or simply “other assets”, though such a vague title may require note disclosure explaining the nature of the asset. Gov’t payable – GST/HST, PST (if still applicable), payroll remittances, income taxes Cash flows – no exceptions. It was decided that this schedule provides very useful information to the user and is therefore required.

13 Transition Steps Decide which Canadian GAAP: IFRS or ASPE?
Select accounting policies Plan for transition – review S. 1500 Prepare opening B/S Prepare disclosures Consider tax implications Consider other implication Decide which Canadian GAAP: IFRS or ASPE? Consider long-term strategic plans – IPO, foreign operations, financing requirements Understand the implications Select accounting policies Consider impact on I/S, B/S, financial ratios and other F/S based metrics Plan for transition & opening BS Review S. 1500 Disclosures – government payables, changes to financial instruments, SSAP etc Tax implications – bump ups for fair value on PPE might have capital tax implications, record FV investments you should keep track of costs seperately Other implications – human resource contacts (financial-based compensation, bonus or profit sharing), banking agreement covenants, supporting documentation for changes and fair value assessments, ARO

14 More Information on ASPE
Resources available from the ICAO Standards in Transition Website Includes: FAQ, Transition Guide, and Archived Webinars CICA has also released publication on Sample Model Financial Statements Also – our November presentation covered an in-depth transition case study and sample before and after statements. If you would like a copy of this presentation, please refer to our website! Are there any questions regarding the points we have covered on ASPE? Leanne is going to take over the next part of our presentation on Preparing for your Year-End Audit and Review.

15 Preparing for Year - End Audit/Review
This next section will focus on strategies to help make your audit or review engagement go smoother, ultimately saving you time and perhaps even some money. As mentioned earlier it is based on our past experiences auditing and reviewing a variety of companies and NFP and registered charities plus discussions with controllers and accountants on what they would like to see done during the audit or review process.

16 Objectives Overview of new CAS requirements and impact on your year-end How to prep your GL (and cut down on adjustments and audit costs!) How to get the most efficiency out of your audit Detailed working papers to help your Auditor/Accountant The section will focus on three items: Firstly, the new CAS standards and the impact they will have on you. What will you notice different in this year’s audit compared to audits you have been involved with in the past. Note these standards only apply to audits and not review engagements. Secondly, how to better prepare your G.L. to help cut down on time and audit/review costs. Finally, we will go through briefly some working papers you can prepare in advance for you auditor or accountant that will help the audit go more smoothly and reduce the number of interruptions to your already busy day by the auditor or accountant. We will go through the key F/S areas.

17 New Canadian Audit Standards (CAS)
Effective for year-ends ending after December 14, 2010 Significant changes are: - Change to Audit Report wording - Change to Audit Report date - Change to materiality - Change to client communications - Change to certain audit procedures if your Company or Organization has a December 31, 2010 year-end your audit will be done in accordance with the new CAS standards rather than the old generally accepted auditing standards. The changes that will impact you the client the most are the following: report wording report date materiality client communications certain changes to audit procedures

18 Change to Audit Report Wording
It is now referred to as “Independent Auditor’s Report” has been extended to report on Management Responsibilities and Auditor Responsibilities for the statements Management’s responsibility Produce statements free from material misstatements (whether due to fraud or error) So the key differences to the audit report are: It is now referred to as the “independent auditor’s report” whereas in the past it was simply “auditor’s report”. It is now 6 paragraphs in length extended from the original 3 paragraphs. It specifically clarifies the responsibility of management in the audit process and the responsibility of the auditors in the audit process. It is management's responsibility to produce F/S that are correct and accurate and free from material misstatement. Misstatement refers to both errors and misstatements due to fraud. This is not necessarily new to the audit process but what is new is that the audit report clearly states this now.

19 Change to Audit Report Wording – Cont’d
Auditors’ responsibilities Conduct audit in accordance with Cdn GAAS Obtain sufficient evidence concerning the reasonability of amounts and disclosures in the FS (including accounting policies and management’s estimates) Factors to assess reasonability include risk assessment, professional judgment, assessment of internal controls Must now disclose notes regarding comparative amounts (unaudited or audited by a different auditor) Auditors are responsible to ensure that the audit is conducted in accordance with Cdn CAS. You will note the audit report under CAS still refers to generally accepted auditing standards. However, even though it is the same term you are familiar with, it is now referring to the new Canadian auditing standards. It is the auditor’s responsibility to obtain enough evidence to support an opinion on the reasonability of the amounts and disclosures in the F/S. The auditor will need to consider both the amounts on B/S and I/s plus the accounting policies chosen by management and estimates made by management and will need to assess that they reasonable in the circumstances. The auditor as part of the audit process will need to complete a risk assessment considering the internal control system put in place by management. Every audit will be impacted by the auditors professional judgment. Finally, new to the audit report will be the disclosure of the fact that the comparative amounts shown have never been audited or that it was audited by a different auditor in the past. In the past this information used to be disclosed as a Note to the F/S but under CAS it is required on the face of the audit report.

20 Change to Audit Report Date
Report is now dated when the financial statements are approved: Management Shareholders/Stakeholders Board of Directors Audit or Finance Committees This will generally be later than in the past. Draft financial statements will likely not be dated. Due to date change, additional audit procedures may be required depending on how long the approval process takes. Another significant change that you will notice under CAS is the date of the audit report. In the past it was dated when the audit was substantially completed which was usually the last day of fieldwork. However, under CAS this will be the date that both sufficient audit evidence has been completed and the date that the F/S are approved. Who can approved the F/S will vary by company but will typically be by Management, Shareholder, Board of Directors in Public companies, Not-For-Profits and registered charities or sometimes by an audit or finance committee for both Not-For-Profit and private entities. Impact on you - Regardless who approves the F/S the date will be later than in the past. Impact on you - When you receive your draft F/S they will not be dated as they have been in the past as the date of approval will likely not be known. As there will be some lag time since the auditor left your office the auditor may be require to do additional procedures on subsequent events. At a minimum the auditor will be require to ask if anything has happened since you last spoke or since fieldwork was completed that will impact the y/e F/S or that should be disclosed in the notes to the F/S. If something has occurred the auditor may need a copy of the related documentation such as the appropriate contract, legal invoice, etc. The auditor may determine that further procedures are needed and may request to come out to do your office to do additional procedures. In addition, you may also find wording in the representation letter by management to the auditors stating that nothing has occurred since the year-end fieldwork to date of approval of the F/S that should be disclosed in the F/S.

21 Change to Materiality Now three levels:
Overall planning: for statements taken as a whole Performance materiality: represents between 60-75% of overall planning materiality that auditor will use to determine extent and timing of audit procedures Specific materiality: (if required – based on professional judgment) represents level of materiality for specific classes of transactions or account balances More adjustments may be required as all non-trivial misstatements must now be adjusted, regardless of materiality In the past you may or may not have been made aware of the materiality for your company’s audit. Under CAS you should be made aware of the materiality. There are now three levels of materiality, 2 mandatory materiality levels and 1 optional depending on the auditors professional judgment. The first level of materiality is called “overall materiality” and this is the materiality level auditors have always used in the past and it is applies to F/S as whole. The second level of materiality is referred to as “performance materiality” and is usually a % of overall materiality (60-75%) and will be used to help the auditor to determine the amount of work and procedures needed to determine that a balance or transaction is reasonable. Finally specific materiality as mentioned is optional and will depend on the auditor’s professional judgment and the nature of the balances or transactions. If the auditor feels that overall materiality will lead to insufficient work on a particular balance than the auditor may apply a specific materiality to this balance. One example is vouching of all legal examples. The materiality on this expense balance is $0. Impact on You - As there are now three levels of materiality certain balances that may have been looked at in the past by your auditor may not be considered under CAS. Or vice versa. You may be requested for additional information n certain balances that you were not expecting. In the past attached to your management representation letter you may have seen a schedule of summary of unadjusted errors. This was a schedule of adjustments that were required but as they were immaterial were not posted by your auditor. However, they had to be tracked an accumulated over the years to determine that they did not exceed materiality. Under CAS it is required that all but non-trivial adjustments be posted. If management wishes not to post an adjustment the auditor will need to know why and assess how this adjustments impacts the F/S to determine the appropriate course of action. Impact on You - So this means you may be asked to post more items this year than you have been in the past.

22 Change to Client Communications
Establish a mutually acceptable communication process Communicate: Form Timing Expected general content CAS was designed to improve the communication between the client and auditors. This was done to ensure that the audit was a smooth and efficient process that met its objective. This does not necessarily mean you will receive or need to produce more letters. What it does mean that you auditor and you will be talking and communicating before, during and at the end of the audit. You and your auditor will need to agree on what type of communication process works best for you the client. You should agree on the form of communication, will it be in letter format, , memo, etc. It can be a combination of more than one. For example an engagement letter is required and you may require a letter summarizing all the audit findings and details but you may want things discovered during the audit process to be communicated either verbally or via . There is no right or wrong way. It is what you and your auditor chooses. You should agree up on the timing that you expect draft F/S, final F/S, tax returns, letters, AJEs, etc. And finally you should what content should be covered.

23 Sample Communications
Expected communications could include: Engagement letter Pre-planning letter (timing, materiality, responsibilities of management etc.) Representation letter from Management Independence letter from Auditor (subject to change) Management letter/Post-Engagement letter (matters of interest, assessment of controls, audit issues or disagreements etc.) Some of these communications may be in verbal format, , etc. As agreed to by both parties.

24 Changes to Certain Audit Procedures
Confirmations External confirmations are no longer mandatory, but at the discretion of the auditor Accounting estimates Auditor required to assess reasonability and track past history of management’s estimates Additional enquiries regarding going concern and management assessment of risks You may note that certain procedures that you were always use to being done may not be performed in the current year or may be performed on a limited basis. However, you may also noticed that you are asked a lot of new or additional questions on areas that have never been asked before. This is due to CAS. Some areas where you may notice differences are: Confirmations – In the past where you had to prepare or sign a significant number of A/R or A/P confirmations, you may notice that the number is reduced or there may be none at all. Legal confirmations are no longer mandatory and it will be based on the auditors risk assessment of you company. Estimates – you can expect more questions regarding what are estimates that you make and how has you past history been on these estimates. Some common examples are allowance for doubtful accounts, slow moving or obsolete inventory or even your amortization rates and if they reflect you capital assets actual lives.

25 BREAK TIME Coffee and refreshments at the back!

26 Audit Efficiency Welcome back! In this next section we will review some helpful hints and strategies that will lead to a smoother and more efficient audit or review engagement that will ultimately save you time (sanity) and $$. We may use the word auditor or audit in the next few slides but everything we say is also applicable for a review engagement. If it isn’t the case, we will note this as we talk.

27 Audit Efficiency Be ready!
Be realistic with the amount of time you need to prepare. Be realistic about how much time you (and others!) need to be available to the auditor during fieldwork. One of the first steps for your year-end strategy is to be ready and be realistic. Do not let your auditor come until you are ready! However be mindful of due dates for government filings and requirements for banking arrangements. Ensure you have ample time for fieldwork, questions, drafts review before finals. General rule of thumb is that your accountant needs one week from the end of fieldwork before drafts are typically ready. Be realistic with the amount of time you need to prepare. As we discuss in the next section, the more schedules you prepare, the more efficient your year-end will be. But this does require an upfront commitment of your time and resources. Be realistic about how much time you (and others!) need to be available to the auditor during fieldwork. Auditors will typically now discuss areas with more than just the CFO or Controller. They may need time with certain department heads or the general manager as well. Consider booking daily appointments with the auditors to field questions and deliver Working papers (WP) Don’t be afraid to ask the auditor to limit enquiries to certain time periods. Agree on a method of communication that works for you! Verbal, memos, , voic , interviews etc. Also consider the location you use – boardroom vs your office (consider access to accounting data and other resources.)

28 Audit Efficiency Anticipate questions - new or unusual balances
- significant changes - Related party transactions and balances Ask for a Prep List - scope - list of audit/review questions Anticipate questions New or unusual balances Assets, Liabilities, Revenue, Expenses in unnatural balance position Round numbers Balances that are significantly different than prior year(s) Balances that are significantly different than budget/expectations/industry standards All related party transactions and balances – these are needed for FS disclosure Ask for a Prep List Ask them to outline what areas they will be looking at Ask them to define a level of scope for balances/transactions for example anything over $15K will require support, anything over $15K and changed by $5K will require support and/or explanation Ask them to prepare a list of audit questions on balances or general audit inquiries if possible before fieldwork begins so you have adequate time to prepare (or delegate!) Having these prepared in advance will also keep them busy and answer many of their FW questions, decreasing the amount of interruptions. Some of these schedules, if prepared well are also rolled forward from year to year and may only need to be updated.

29 How to Prep Your G/L There are a few ways to prepare a G/L that will ultimately save you time and $$: Booking recurring entries Agreeing or reconciling G/L balances to schedules The next few slides outline some common examples….. One of the most significant investments you can make is in prepping your GL. The next few slides will review some basic strategies. These have been separated into 2 categories – recurring entries and supporting balances.

30 How to Prep Your G/L Ensure retained earnings agrees to previously published F/S. Ensure all prior adjustments from previous audits have been posted (unless directed otherwise) Ensure subsidiary or related company balances agree (or are reconciled) First we will begin with preparing your G.L. for an audit. We know many of you are probably doing a lot of these already so if you are please think of this as a refresher that you are doing everything you can to ensure your audit goes smoothly. Some basic items you can do are:

31 How to Prep Your G/L – cont’d
Some recurring entries include: Ensure bank reconciles to G/L Update any monetary FX balances Book any allowances/accruals Annual amortization for capital assets There are many recurring entries that need to be posted each year that you can post prior rather than having the auditor post them. Some of these items include: Bank Stale-dated items: the entry should be to A/P if you think you will need to issue a replacement cheque or to the appropriate expense account if you don’t think you will have to pay this item in the future. Most of the times it will be A/P as a vendor will discover that the items has been paid and will come looking for it. FX – for Cash, AR, AP and investments, using year-end rates – check bank of Canada or use your bank’s rates. If your bank does not publish these online, ask your bank manager to provide you with a monthly schedule. Accruals/allowances Doubtful accounts in AR Obsolete or slow-moving inventory Audit/accounting accruals (typically same as last bill)

32 How to Prep Your G/L – cont’d
Book recurring allocations or reclassifications Inventory COGS Salaries Credits/debits in AR or AP General expense accounts, miscellaneous Inventory – of you are in manufacturing industry make sure you have recorded a portion of the OH cost such as amortization on machines used to produce inventory, rent on manufacturing portion of the building to inventory and COGS. Salaries – consider if mgmt salary usually reallocated to a separate a/c or if a portion is allocated to ending inventory on hand at y/e. Also consider SRED allocations. Is there a balance is a general or misc expense accounts? Consider what this balance is made up off and whether it should be reallocated to another account. Has it been reallocated in the past by the auditor. If yes and this account is similar in make-up to last yr consider doing the reallocation yourself this year.

33 Detailed Working Papers
Cash – Bank reconciliations tied to bank statements Listing of subsequent receipts and disbursements Listing of monthly FX rates used Accounts receivable Aging summary tied to G/L. Identify anything subsequently paid. Identify doubtful accounts. Adjust for foreign exchange Leanne is going to take over now to review the support of specific GL balances. In addition to preparing you G.L you can also prepare schedules for the auditor, agreed to various G.L. totals and provide supporting documents. This will assist the auditor in determining the reasonability of amounts, save them time as they will not need to prepare these various schedules and in the end save yourself time as there will be significantly less questions from the auditor asking about balances and for information during the audit process. We will now go through the most common B/S and I/S items and identify the working paper that will most likely assist the auditor. We will first start with the B/S. Cash – Bank reconciliations tied to bank statements for year-end and subsequent month if available Listing of subsequent receipts and disbursements to the first day of fieldwork (FW) Listing of monthly FX rates used Accounts receivable Aging summary tied to G/L. Identify anything subsequently paid. Identify doubtful accounts. Adjust for foreign exchange Explanations for significant fluctuations!

34 Detailed Working Papers
Inventory Summary of composition of inventory Memo outlining inventory count procedures, count date, costing method Obsolete/slow moving inventory Inventory in transit/consignment Fixed contracts S 3031 Inventory requires allocation of OH unless you are using % of completion. Remember to provide your allocation schedules as part of your inventory prep.

35 Detailed Working Papers
Deposits and other assets Listing of all deposits, with supporting documents Summary of insurance coverage Capital assets Continuity schedule Supporting documents G/L listings for all R&M accounts Ensure following internal capitalization policy Ensure amortization is calculated on additions/disposals Prepaids Listing of all prepaids, with supporting documents for significant items Summary of insurance coverage and when it was last reviewed with your insurance provider Capital assets Continuity schedule (if you don’t have one, ASK for the auditors! They are happy to share!) Supporting documents for significant additions and disposals G/L listings for all R&M accounts Ensure following internal capitalization policy Ensure amortization is calculated on additions/disposals

36 Detailed Working Papers
Accounts payable Aging summary tied to GL balance Adjust for foreign exchange Related party balances GST/HST agreed to last return filed Source deduction statement tied to GL Listing of accruals with support

37 Detailed Working Papers
Income taxes Continuity schedule Copies of all assessments Installment summary Identify Schedule 1 addbacks Meals and entertainment – 50% Life insurance Non-deductible interest Non-deductible memberships (golf fees)

38 Detailed Working Papers
Current Operating Line/Long-term debt (leases/loans) Copy of the contract and amortization schedule Reconcile GL to amortization schedule Schedule of balances due within one year Calculation of covenants

39 Detailed Working Papers
Revenue and Cost of Sales -Prepare gross margin analysis -Top 5 or 10 customer sales -Sales/revenue trend analysis - Reasonability analysis - Interest reasonability - Grant revenue – copies of any new grants tied to G.L. - Revenue to budget analysis - What will need to be prepared for your audit or review engagement will largely depend on what industry you are in. - Following is a list some common examples Revenue and Cost of Sales -Prepare gross margin analysis (overall, mnthly, qtry, by product, product line, etc) -Top 5 or 10 customer sales -Sales/revenue trend analysis for the 3 to 5 years explaining any significant variances. - Reasonability analysis – # of attendees to an event or class multiply by price agreed to G.L. - Interest reasonability - Grant revenue – copies of any new grants tied to G.L. - Revenue to budget analysis

40 Detailed Working Papers
Other Expenses - T4 reconciliation – agree T4 to total wages - Memo describing any significant hires and terminations in the year - Memo explaining why certain expenses accounts may have significantly increased or decreased - Expense to budget analysis Other Expenses - T4 reconciliation – agree T4 to total wages expense for the year - Memo describing any significant hires and terminations in the year - Memo explaining why certain expenses accounts may have significantly increased or decrease in the year and for audits include copies of support for significant costs/invoices. - Expense to budget analysis I’m now going to hand the presentation back over to Trudy who is going to outline some of the other general areas of year-end preparation.

41 Detailed Working Papers
Organization chart Internal (showing lines of authority) External (share structure and related parties)

42 Org Chart Example - Internal
Note the flow of authority, names and titles – but not everybody. List people involved in the financial reporting structure, which is useful for directing specific audit questions.

43 Org Chart Example - External
Note lines of ownership, including related parties. Again – knowledge of related parties is important for FS disclosure.

44 Detailed Working Papers
Cutoff memos Cash, AR, AP and Inventory AJE Types of adjusting entries Authorization and controls on AJE Other general areas also include cut-off and adjusting entries. For cut-off the auditor needs to know the procedures that management takes to ensure that all transactions are recorded in the proper period. For a review – knowledge that management is taking reasonable steps is the min. For audits testing of cut-off may be required. But this should be outlines in your prep letter.

45 Detailed Working Papers
a brief highlights memo copies of all legal invoices copies of new agreements a brief memo describing any new related entities, related party transactions A brief memo describing controls Minutes a brief highlights memo (significant changes in financial, financing, key personnel, operations or product lines, tax audits or issues, industry changes, expansion, etc) copies of all legal invoices copies of new agreements such a rent, leases, sales contracts, foreign exchange contracts, etc a brief memo describing any new related entities, related party transactions during the year or any subsequent events A brief memo describing general controls in place over safeguarding of assets, premises and data integrity controls and controls over specific areas such as cash, AR, etc. For audits these may be used for walkthough tests.

46 Questions?

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