Epic Travel is a travel agency in Saskatoon, Saskatchewan. The company sells travel services to the public.

Since its inception by Cyril Kang, 10 years ago, Epic Travel has had a review engagement performed by the CPA firm Doug and Green. Doug and Green is getting ready to perform the review engagement for the April 30, 2023, year end. While the company has had a history of profitability, the last year proved challenging. In February 2023, a global pandemic shook the world and it resulted in all travel being suspended. In response, the agency temporarily closed its doors for the last three months of the year. To help with cash flow, in March 2023, the company laid off most of its employees. In May 2023, before the completion of the review engagement, Epic Travel took advantage of a government program that allowed it to obtain a government loan and a portion would be forgivable provided it rehired some of its employees.

Doug and Green has completed the client acceptance procedures. The balance sheet for Epic Travel is presented below. In discussions with Cyril, the practitioner notes that the subsidiary reported on the balance sheet is a restaurant not likely to survive the economic slowdown caused by the global pandemic. The goodwill on the balance sheet is the result of the purchase of the restaurant for a sum greater than the fair value of its assets a few years ago. The firm has determined that materiality for the engagement is $25,000.

Required

a. Based on the information and the balance sheet provided, identify the material and high-risk areas.

b. What questions should the practitioner plan to ask Cyril Kang regarding the high-risk areas?

c. Discuss the impact of the global pandemic on the review engagement. Your response should consider the going concern assumption and subsequent events.

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Current assets: Cash Accounts receivable Prepaid expenses Advances to subsidiary company Property, plant, and equipment Goodwill Current liabilities: Accounts payable and accrued liabilities Client deposits Long-term debt Shareholders' Equity Share capital Retained earnings Epic Travel Co. Balance Sheet April 30, 2023 Assets $ 65,000 785,000 20,000 870,000 100,000 200,000 300,000 $ 1,470,000 Liabilities and Shareholders' Equity 2023 $ 760,000 85,000 845,000 495,000 1,340,000 10,000 120,000 $ 1,470,000 $ 2022 50,000 955,500 25,500 1,031,000 100,000 650,000 300,000 $ 2,081,000 $ 560,000 295,000 855,000 405,000 1,260,000 10,000 811,000 $ 2,081,000