Beaumont Limited ("BL") is a Montreal based private company established thirteen

years ago. BL operates a laboratory that manufactures eye glass lenses. All ten

shareholders of BL are relatives of the founder and Chief Executive Officer, Jacques

Beaumont. Six shareholders (including Jacques) are active in the company and are

responsible for a different aspect of the business - accounting, finance and

administration, manufacturing, distribution/sales, product development, and

purchases. The remaining four shareholders are passive investors and are not

involved in any aspect of the business.

Until recently, financing for the business was obtained from family members, as well

as a significant line of credit from the local branch of an international bank. The line

of credit is secured by a lien on BL's building and equipment's fair market value as

well as the inventory balance. As part of the line of credit agreement, BL is required

to maintain a minimum quick ratio of 1.2 and a positive net income. In 2015, due to

increased demand for BL's products, BL decided to expand and purchased modern

facilities and equipment.

To finance the purchases, BL obtained private equity financing from The Northern

Group (Northern), a local investment firm, in exchange for a 25% ownership in BL.

Northern invests with the goal of obtaining regular cash flow returns

as well as

appreciation in the value of its investments. The Beaumont family including Jacques

still owns the remaining 75% of BL.

As a condition of its investment, Northern required that BL obtain an audit opinion

for its financial statements starting with the year ended December 31, 2015.Further

investment to expand BL may be required in the future. As a result Jacques has had

recent discussions with a local brokerage firm about a possible initial public

offering.On December 1, 2015, Kevin Bastian, BL's shareholder in charge of accounting, finance and administration, expressed interest in selling his shares and leaving the company to start a new business. Pierre Timmons was hired on December 15, 2015 as BL's Chief Financial Officer to facilitate Kevin's transition. Pierre's mandate was to bring in a greater emphasis on controls around financial reporting and monitoring. After his

initial assessment of the current state of BL's accounting department, Pierre

informed Jacques that there was no formal assessment of internal controls and

business risks conducted in 2015 and in his opinion the current internal

controls at BL might not be effective. Additionally, BL had not adopted any formal accounting policies to prepare financial statements. Pierre has initiated the first steps to conduct risk assessments and design better internal controls. Pierre informed Jacques that it was a huge task and is scheduled to complete by mid -2016.

Pierre has requested the hiring of an assistant controller to provide more resource

s to help him formulate and document job descriptions and update, develop and document internal controls.

Waller and Co., a small CPA firm managed by its partner, Marvin Waller, had

performed review engagements for BL since its inception. Marvin Waller, CPA

, is a very close friend of Jacques. It is now January 2016. Jacques has requested of

Waller and Co. that it conduct a financial statement audit by the end of March 2016.

Jacques also asked that Marvin limit the audit fee to what was charged for the 2014

review. Marvin agreed, suggesting that as most small to medium sized businesses

have so few controls, he has been able to provide low cost audits in the past because

he focuses solely on tests of details and analytical review. Marvin set up an audit

team to be led by his niece Elia Jones who obtained her CPA designation in 2010

while working at Waller and Co. Elia had left the firm in January 2014 and joined

BL as a senior sales representative, which was very financially lucrative for her. After

about a year Elia realized that she really missed public accounting and in March

2015 she rejoined Wallerand Co. Marvin personally selected Elia to lead BL's audit

due to Elia's extensive understanding of BL's business, which would be of great

value during the audit.

Elia was supported by two assistants, Hang Li and Maria Ferraro, both of whom are

currently University students. Elia thought that on - the - job training was one of the

best forms of professional development. Elia decided to let Hang and Maria perform

all of the audit field work and resolve all audit issues by themselves. Elia decided

not to provide any direction to them until the audit was completed, at which time she

planned on reviewing the file and providing her feedback. Elia was confident that

they were ready for this type of work as they had both done well in their auditing

courses at University.

As Pierre was struggling with getting the 2015 accounting records and financial

statement details organized, he telephoned Marvin and asked if Hang and Maria

could be loaned to BL for two weeks to assist with closing the financial statements.

Marvin was very sympathetic to the situation and considered that this help would

expedite the audit process. Therefore, he agreed to contract out Hang and Maria to

help.

There have been disputes between BL and its largest customer, which used to be one

of Elia's accounts when she was working at BL. Jacques reached out to Elia to attend

a meeting that was organized to resolve the disputes. Elia attended the meeting and

assisted in resolving the issue.

After the analytical review and tests of details testing was completed, Elia asked

Maria and Hang if there were any observations that had a significant impact on the

financial statements. They indicated that there were none noted. Based on these

conversations, Elia did not review the audit working papers. Instead, she examined

the analytical procedures completed that were similar to those completed for last

year's review and decided that an unqualified audit opinion was appropriate for BL's

2015 financial statements. Marvin was very happy that Elia was able to complete the

audit within the deadline and signed the unqualified audit report.

Required:

(Please use case facts to answer all questions outlined below. Note that answers to each question part must be different)

A)

Describe three specific management responsibilities relating to the financial

statements of BL that has not been properly completed. Explain why this

management responsibility is important.

B)

Explain four specific independence threats that exist for the auditors of BL.

For each independence threat, explain why it is a threat and describe a

potential mitigating strategy(8 marks)

C)

Describe seven specific Canadian Auditing Standards ("CASs") that have been violated

by Waller and Co. Explain why. For each, provide a specific quality control recommendation that could have prevented the CAS violation.