Case Study Question Because of increasing terrorist threats, Paul, a dynamic and charismatic entrepreneur, had a vision of developing enhanced x-ray scanning equipment that was lower-priced than anything currently available. He was convinced that there would be a large market for more sophisticated and less-costly security systems in the future, not only at airports but also at government and corporate offices and facilities. With an initial investment of $8 million of his own money, in January 2018, Paul incorporated PSE with the sole purpose of researching, developing, manufacturing, and marketing x-ray security systems. PSE qualifies as a Canadian controlled private corporation (CCPC) for tax purposes. Although Paul did not have a background in either engineering or finances, he was able to attract key people with the necessary skills to work in this high-risk venture by offering excellent salary and compensation packages. During the first year of operation, PSE concentrated on the research and development (R&D) phase of its business plan and, as a result, generated no revenue while incurring substantial expenses. All R&D costs were expensed as incurred, including any equipment purchased for research purposes. However, capital cost allowance was recognized on the equipment. Development testing was completed in 2019, and with patents pending, PSE introduced its first product to the market. To eliminate the need to incur the high fixed costs associated with owning and operating its own manufacturing plant, PSE outsourced all manufacturing to a abroad electronics manufacturing firm that manufacturers a wide variety of electronics for many different customers. All purchases from this country are denominated in Canadian dollars. The product was an immediate success, with sales contracts secured from several large airports and corporations worldwide. Sales are denominated in the currency of the customer's country, and all sales are made on credit. Although a net 30-day credit policy is in place, the average age of accounts receivable is currently 64 days. Accounts receivable have been steadily increasing, particularly among foreign customers. The Canadian dollar is weakening against foreign currencies in general. Recently, PSE's customers have been complaining about defective parts and slow delivery. Initially, PSE's engineers oversaw the manufacturing of the units, but now PSE relies solely on the overseas company's quality control staff. Warranty costs have increased significantly in the past 6 months, and delivery dates are not being met. PSE has just learned that a its large customer in South Africa has filed for bankruptcy. The chance of collecting this receivable is very low. The loss would be in the millions. With the impending launch of the newest developed product, a full body scanning device, there is a growing concern over the quality control at the manufacturing facility. The product incurred research costs in 2018 and 2019. To help promote sales, a prototype was built in 2019, and many contracts are under negotiation. PSE is experiencing severe cash flow problems. Funds are needed to finance PSE's rapidly rising working capital requirements, along with the launch of its new product and ongoing research and development. Because of the nature and age of the business, PSE has been unsuccessful in securing any short-term financing through a bank. Since Paul is reluctant to invest additional equity capital, one of the options that PSE's management is looking at is taking the company public next spring with an initial public offering on the Toronto Venture Capital Market. The shares are expected to be issued at $12 per share. It is expected that this offering will raise in excess of the $10 million estimated requirement for working capital.

As part of its compensation package, after 6 months of employment, employees are given the opportunity to take part in an employee share purchase plan. They can purchase shares at a discounted price of $5 per share and have the option of paying for them through payroll deductions over a two-year period. This benefit gives employees the opportunity to share in the profits of the company. However, Paul has always been careful to retain a substantial majority of the shares for voting control. If the company goes public, this bargain price for shares will not be permissible and Paul is looking for another employee incentive plan that will provide similar benefits to both the company and its employees. As the company has grown, so has the number of employees. PSE currently has 110 employees, which represents a 500% increase in staff over the past 2 years. This rapid growth has placed tremendous pressure on the organization's human resources function and its information and reporting systems. Employees often are forced to share workstations. This has resulted in employees not logging off the system before other employees use the computer workstation. Employees from different departments with different levels of data authorization access may share workstations. The IT staff is limited, and backups of the system are sporadic. These conditions resulted in the previous controller resigning last month and claiming, Nobody around here seems to know what they are doing. We are just making things up as we go along. We are a disaster waiting to happen! You, a CPA, were hired to replace the departed controller. From its inception, PSE has chosen to follow simplified financial reporting wherever possible, given that its financial statement users are limited to Paul, management, and employees; for example, it is using the taxes payable method. You have been working with the CFO on the urgent task of designing and implementing a flexible and scalable reporting system that can meet the needs of the operating managers as well as fulfill PSE's reporting obligations as a public company once the IPO is executed. (Exhibit 4-1 contains a copy of the current financial statements.) The CFO feels a sense of urgency because the auditors are expected next month. Not only is he concerned about the accounting treatments, but he knows that the auditors will be assessing the company's internal control system. Currently, procedures are not documented and everyone in the finance departments seems to be doing a little bit of everything. However, some policies have been implemented and documented, such as a privacy statement stating that employees will not disclose proprietary information. You were surprised to hear that the CFO intends to resign after the public offering is complete, especially in light of the fact that he recently purchased a large number of shares under the employee purchase plan. Upon hearing this, Paul requested that the CFO leave immediately. Paul has asked you to assume the CFO's position on a temporary basis. He said that he expects an overview of the financial and operational status at next week's management meeting.

Please help me use a bullet point format to summarise the case shortly. Thank you so much!