Your public accounting firm is the auditor of Taylor Fruit Farms, Inc., a company located in Penticton,

Question:

Your public accounting firm is the auditor of Taylor Fruit Farms, Inc., a company located in Penticton, B.C., and incorporated under the laws of British Columbia. You have been requested by the management of Taylor to issue an opinion under Section 5815 of the CICA Assurance Handbook with respect to Taylor's compliance under the terms of a chattel mortgage issued by J.L. Lockwood Corp. as part of your audit of Taylor Fruit Farms, Inc. J.L. Lockwood Corp. is a supplier of irrigation equipment. Much of the equipment, including that supplied to Taylor, is sold on a secured con¬ tract basis. Taylor Fruit Farms is an audit client of yours, but Lockwood is not.

In addition to the present equipment, Taylor informs you that Lockwood is evaluating whether it should sell another $500,000 of equipment to Taylor Fruit Farms.

You have been requested to send them the report under Section 5815 concerning the following matters:

1. The current ratio has exceeded 2.0 in each quarter of the unaudited statements prepared by management and in the annual audited statements.

2. Total owners' equity is more than $800,000.

3. The company has not violated any of the legal requirements of British Columbia's fruit-growing regulations.

4. Management is competent and has made reasonable business decisions in the past three years.

5. Management owns an option to buy additional fruit land adjacent to its present property.

Required

a. Define the purpose of a report under Section 5815.

b. Is it necessary to conduct an audit of a company before issuing a report on compliance under Section 5815?

c. Would you include all five matters listed above in your report? If not, explain why you would exclude any from the report.

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Related Book For  book-img-for-question

Auditing And Other Assurance Services

ISBN: 9780130091246

9th Canadian Edition

Authors: Alvin Arens, James Loebbecke, W Lemon, Ingrid Splettstoesser

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