TripleB Security (TripleB) is a general partnership that was formed and is operating in a Canadian city. Three brothers—George, Henry, and Gordon Bishop—have owned and operated TripleB since 1994, when they opened a centre to monitor security systems. TripleB provides the initial response when an alarm goes off at customers’ business premises or homes, throughout the city.

TripleB follows an aggressive expansion strategy that includes acquiring customer contracts from competing monitoring services. The customers are immediately converted to TripleB’s trademark and operating name.

Henry Bishop has an avid interest in e-commerce, and recently persuaded his brothers to enter the Internet service sector through an Internet business, SecurNet, which will be operated as a division of TripleB. SecurNet is to be a business-to-consumer Internet-based business that will use Henry’s “SecurPay”

system for processing Internet-based transactions between vendors and consumers to enable payments to be made and received through an independent and secure third-party verification system.

As a condition of a refinancing agreement, TripleB is required to provide annual audited financial statements within 60 days of the fiscal year-end. TripleB has never previously been audited. Its prior-year financial statements were prepared by TripleB’s accountant, Todd Cook, for tax purposes only.

You, CA, are a senior with Stavness and Folk Chartered Accountants (SF).

You and a partner in your firm recently met with the three Bishop brothers and Todd Cook to discuss the changes to TripleB’s financial reporting requirements in light of recent developments. At the meeting, it was agreed that SF would be appointed auditor for the January 31, 2007, audit. George has provided you with the unaudited financial statements for the year ended January 31, 2006, and for the nine months ended October 31, 2006. These statements are shown in Exhibit E and notes related to financial statement items are in Exhibit F.

At the meeting, the brothers voiced their excitement about the upcoming launch of SecurNet. Henry mentioned that he had hoped to have the time to document the controls he has built into and around the SecurNet system but that he has been too busy. Everyone agreed to have SF prepare the documentation required by TripleB, which includes an identification of each control, an explanation of what each control achieves, and some procedures Henry could use to test the controls to ensure that they work properly.

It is now November 15, 2006. You have received information from Henry summarizing how SecurPay functions. This information is presented in Exhibit G. The partner has asked you to prepare a draft report for the client on SecurNet’s controls and a planning memorandum for him discussing the audit and accounting issues related to the 2007 audit engagement.

Required:

Prepare the report and the memo.

Transcribed Image Text:

EXHIBIT E BALANCE SHEET AND INCOME AND PARTNERS" EQUITY STATEMENT Assets Current Assets Cash Trade accounts receivable Current portion of notes and advances Prepaid expenses Notes and advances Investment in customer contracts. Capital assets Liabilities Current Liabilities Bank advance Accounts payable and accrued liabilities Current portion of obligations capital leases Current portion of long-term debt Obligations under capital lease Long-term debt TripleB Security Balance Sheet as at (unaudited) Partners' Equity Partners' Equity October 31, 2006 $ 395,427 254,148 76,000 51,810 777.385 2,675,356 851.159 $4,303,900 252,002 110,148 536.000 898,150 248,399 1,081,524 2,228,073 2,075,827 $4,303,900 January 31, 2006 271,976 30,148 47.713 349,837 76,000 2,447.126 558.466 $3,431,429 $ 87,433 283,504 106,814 505.990 983,741 334,014 1,066.996 2,384,751 1,046,678 $3,431,429