A Healthy Glow Inc. (AHG) is a privately-held Canadian company that was founded in2008 by Jennifer Minaj. Jennifer owns 60% of the company and the remaining 40% was owned by her father, Jim, who provided Jennifer money to start the business. Jim was totally hands-off from AHG and let Jennifer make all operating decisions. To fund his retirement, Jennifer’s father recently sold his stake in AHG to a private equity firm.

Your firm of Wynne & Horwath (W&H), CPAs was approached for the first time to conduct the audit of AHG as one of the firm’s partners is a close friend of Jim. W&H contacted AHG’s predecessor auditor and was told that AHG’s management does a good job of creating accurate financial statements and there have been very few misstatements found in the past, including none in the previous year. Based on this, your firm decided to accept the engagement. Your firm was appointed to conduct the financial statement audit of AHG for the year ending December 31, 2018. As senior of the audit, you have made the following notes:

1.AHG owns three stores in the Greater Toronto Area that sell organic household cleaning products to consumers. They have been successful as they offer high-end products that consumers cannot find anywhere else. The continued growth of the Canadian economy has AHG hopeful that they can continue to open more stores across the GTA.

2.To help finance future growth, AHG obtained a secured line of credit from a local bank. The loan is secured against AHG’s inventory and a condition of the line of credit is that the amount of money borrowed by AHG from the bank cannot exceed its inventory balance. AHG has currently taken out $2 million dollars while its inventory balance is $2.5 million.

3.In addition to growing the number of stores they operate, during the year AHGlaunched a website to allow people across Canada to order their goods. All orders are done via credit card and are shipped to customers using Canada Post. There have been some problems with customers making an order (such as a wrong house number being entered by a customer or an order being entered without a postal code) which has resulted in AHG sending purchases to the wrong address. AHG always follows up with the customer to ensure they receive the ordered products in a prompt manner.