We have completed AlarmForce 2011 annual audit planning. Significant issues and strategies are discuss in the planning audit file below.
Table of Contents
1. OVERVIEW 2
2. MATERIALITY ASSESSMENT 5
3. PRELIMINARY ANALYTICAL PROCEDURES 7
4. OVERALL AUDIT STRATEGY 9
5. AUDIT RISK FOR SIGNIFICANT ACCOUNTS & PLAN AUDIT PROCEDURES 10 5.1 Audit Risk 10 5.2 Risk of Material Misstatement 10 5.3 Plan Audit Procedures 11 5.3.1 Cash and cash equivalent 11 5.3.2 Accounts Receivables 12 5.3.3 Short-term Investment 13 5.3.4 Inventory 14 5.3.5 Rental Equipment 14 5.3.6 Revenues and multiple delivery arrangement 15 5.3.7 Research and Development Cost & Intangible Assets 16 5.3.8 Long-lived Assets 17
6. Canadian & IFRS changeover 18
7. Accounting Issue Analysis 19 7.1 Accounting for Accounts Receivables Factoring 19 7.2 Measurement of Short-term Investment 19
Appendix1: Preliminary Analytical procedures calculation 20
Appendix 2 : Fee and time Budget 23
Nature of the Business
AlarmForce Industries Inc. (AlarmForce) is a Canadian company that provides security alarm services, personal emergency response monitoring and related services throughout Canada and the United States. AlarmForce is a publicly owned company whose shares are listed on the Toronto Stock Exchange (TSX).
Summary of Significant Policies
Until 2010, AlarmForce prepared their financial statements in accordance with Canadian generally accepted accounting principles (GAAP). For the year 2011, AlarmForce Industries will change their reporting standards from Canadian GAAP to international financial reporting standards (IFRS). As comparative financial statements are required for the Annual Report, the 2010 financial statements must be modified to reflect IFRS standards in the 2011 Annual Report. Risk associated with the changeover of accounting policies from GAAP to IFRS will be discussed in our audit plan. AlarmForce must conform to the Business Corporations Act. As auditors, we conform to the Rules of Professional Conduct that is administered by the ICAO.
General Risk Assessment
Table 1 | | | Overall Risk | Comment | Impact | Competency concern | Currently, we have 5 partners and a professional staff of 18 members. As AlarmForce Industries Inc. is a large publicly traded company that reports on the TSX, we must assess if our firm has sufficient and appropriate staff to perform the audit. Since our firm plans to grow by 300% over the next two years, we anticipate that many new staff members will be hired. We must consider if the new staff have the competency to audit a large client such as AlarmForce. | High risk | Change in reporting standards | AlarmForce changed their reporting method from GAAP to IFRS. As auditors, we must ensure that our staff have the competency to audit statements prepared in accordance with IFRS. | High risk | First time audit | Audit risk is increased because this is our first audit of this company: * SF Partnership LLP (SF) ceased to be AlarmForce’s auditors in 2010. While we do not have direct evidence, it seems that SF withdrew from the audit due to disagreements with AlarmForce Management. If SF’s claims were valid, we will have to assess management’s integrity. In accordance with our rules of professional conduct, we have a duty to contact SF to determine the reason why they ceased being the auditors of AlarmForce. * We will not be familiar with AlarmForce’s nature of business * We will check opening balances * We will not be familiar with their system of reporting or internal controls. We will enquire with management as to AlarmForce’s system