You are an audit senior and have recently moved from a large public accounting firm to a smaller firm. At the large accounting firm, you were only exposed to audits of large corporations. You are excited to be involved with smaller entrepreneurial organizations. You have been assigned your first review engagement, Excel Coffee Inc.

The founders and sole shareholders of Excel are two engineers, Bob Christie and Anoop Patel, who are actively involved with all aspects of the business. Bob and Anoop were inspired to create a brewing technique that would overcome the complaints with the traditional French press: removing grit, stopping extraction once pressed, and maintaining heat.

Its signature product, the Excel press, has received rave reviews in a variety of business and home magazines. With its range of innovative products designed to achieve consistently great results, Excel Coffee Inc. is carving an important niche among coffee and tea aficionados.

In the past, Bob and Anoop had used the crowd-funding platform Kickstarter to fund its product development. Through Kickstarter, individuals pledge from $50 to $400 to the particular product development project. Upon completion, the individuals receive a certain number of products based upon the size of their pledge. If the project is not successful, their funds are returned. While Bob and Anoop found this was a quick and effective way of obtaining funds, it is hard to obtain large sums of money this way. Therefore, in order to fund its current expansion plans, Excel has recently received $1 million from East Capital, a commercial lender that specializes in small to medium-sized businesses.

REQUIRED

a. What does it mean that a review engagement provides limited assurance?

b. Explain why a review engagement is appropriate for a company such as Excel?

c. As part of the analytical procedures, you developed a current ratio expectation for Excel Coffee of 0.6. The actual current ratio at year-end is 0.9.

i Do you think this change in current ratio is significant? Explain.

ii Assuming you have concluded that the change is significant, provide an inquiry you would ask of management.

d. As part of your analytical review, you noted a significant increase in legal expense. Further inquiry revealed that expenses were related to a patent infringement suit that Excel has launched against SurePress, a Seattle-based company. What further inquiries would you make regarding the lawsuit?