attahced the case, northern frontier park. NORTHERN FRONTIER PARKAssume you are an audit senior employed by an
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attahced the case, northern frontier park.
NORTHERN FRONTIER PARKAssume you are an audit senior employed by an international public accounting firm. OnMay 1, 2016, Ms. Benice, a partner in the firm, invites you to her office to discuss a specialengagement that you will be supervising. To ensure the engagement runs smoothly, she hasasked you to summarizein a written planning memorandumall important risks and factors to beconsidered when conducting the engagement.The client for the special engagement is Northern Frontier Park (NFP), a privately-heldcompany that operates a safari-style wildlife park in the northern Ontario. Until late last year,NFP had been owned and managed by Mr. Kramer, founder and Chief Executive Officer (CEO).Upon Mr. Kramers death in 2015, all shares in the company were distributed to his family.Because no one in Mr. Kramers family wants to take over the business, the family will sell100% of the NFP shares at the end of the current fiscal year to Newman, the current controllerand Chief Financial Officer (CFO) of NFP. Because NFP is a private company, a market pricefor the shares is not readily available. Instead, the purchase/sale price will be based on a multipleof five times the income earned from continuing operations in the year ended May 31, 2016,calculated using ASPE. To ensure NFPs reported net income is appropriate, the Kramer familyhas engaged your firm to provide assurance that the year-end financial statements are reliableand are representative of on-going operations. In past years, NFPs financial statements alwayshave been prepared by the CFO without audit or review.Similar to wildlife safari parks in Africa, visitors drive through NFPs 3200-acre park,which is home to over 100 species of native animals, birds, and fish. Although hunting is notallowed in the park, fishing is permitted from man-made lakes that NFP constructed and beganstocking with fish two years ago. The NFP park has become a popular year-round touristattraction, with the number of vehicle admissions increasing from 40,000 in 2008 when the parkopened to over 55,000 in the 2015 fiscal year. Most of NFPs revenues are earned through parkadmission and hotel accommodation fees. Each vehicle admitted to the park is charged a $20entrance fee, and approximately one-third of all park visitors stay in NFPs 85-room hotel. Withan average nightly rate of $110, hotel occupancy rates typically average 60% each year. Mostpurchases and payments relate to animal and fish acquisition, feeding, and medical care, as wellas to hotel administration and operations.To assist you in preparing the planning memorandum, Ms. Benice has provided you withunaudited financial statements prepared by the CFO (Exhibit 1) and other relevant clientinformation (Exhibit 2). Upon reviewing this information, you recognize that because todaysdate (May 1) precedes NFPs year-end (May 31), only 11 months of operations are includedpresently in NFPs income statement. Ms. Benices discussions with the CFO indicate thatalthough the balances on the 12-month income statement will be larger, their relative percentageof revenues (as shown) are unlikely to change.
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