Audit and Assurance - Accounting and Finance Assignment Help

Assignment Task

You are an experienced audit manager at Samway Baker Fitzgerald (SBF), an accounting firm with offices in Orange, Wagga Wagga, Tamworth, Port Macquarie and Albury in NSW, Toowoomba in Queensland and Ballarat in Victoria. In the next 18 months you hope to be promoted to partner at the Orange office. Although a medium sized firm by national standards, SBF includes Australia’s largest regionally-based auditing practice.

You are gathering information in order to prepare the audit plan of CMS Limited for the year ended 30 June 2021. CMS is one of SBF’s most significant and longstanding clients.

The following information has been gathered to date.

Principal activities of CMS

• research and development of technologies relating to medical equipment;

• manufacture and distribution of medical equipment;

• investment of surplus funds; and

• investment in the property market.

CMS was incorporated in 2000 and has operated successfully and profitably since that date. In the last few years it has branched out into the property market, acquiring a number of commercial properties which are let mainly to medical practitioners.

The directors of CMS are:

• Mr Kanishka Raffel, Chairman
• Ms Jane O’Dell, Chief Executive Officer
• Mr Joe O’Dell
• Dr Fred Sennett
• Dr Hermione Hunter

Doctors Sennett and Hunter are independent non-executive directors and have been directors since 2008. The other three executive directors have been employed by the company since its incorporation and have considerable experience in the industry. Mr Raffel controls a number of private companies.

In prior years SBF placed reliance on internal controls based on satisfactory results of extensive tests of control. Recent discussions with the client have revealed no changes in the system of internal control since last year. The company does not have an internal audit function. In February 2020, research activities relating to a new laser surgery device commenced. Significant costs were incurred in relation to this research. In April 2021 a competitor announced that it had successfully developed and patented a similar device. In order to finance the research activities noted above, the company borrowed from its bankers an additional $5 million during the year. The loan agreement contains a covenant to the effect that should the company's debt to equity ratio (measured as total liabilities: shareholders' equity) increase above 1.2:1.0 at any time, the bankers have the right to demand immediate repayment.

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