Cybernetronics Inc. (Cyber) is a Canadian-owned public company which designs and manufactures communications and control systems. The company's year end is May 31. It is now June 2018.

You, CPA, are the manager for the audit of Cyber and yesterday had met with the treasurer to discuss the year-end audit. The partner responsible for this client has asked you to prepare a report for the client which discusses important financial accounting issues and a memo to him regarding the audit issues you believe are important.

On September 1, 2017, Cyber transferred one of its divisions to a partnership formed with an unrelated party to own and operate the division. Cyber received a non-interest bearing promissory note in the amount of $20,025,000 from the unrelated party and a 19.9% interest in the partnership. The note is to be repaid by the unrelated partner in the amount of $4,005,000 annually for five years with the first payment due August 31, 2018.

Cyber is obligated to provide cash advances to cover 50% of the partnership's cash flow deficiencies from operations. If the performance of the partnership does not achieve specified income and cash flow targets by August 31, 2018, the other partner, which has an 80.1% interest in the partnership, has the right to have the partnership wound up. In the event the partnership is wound up, Cyber would be required to pay back the payments made on the note, the balance owing on the note would be cancelled and the assets and liabilities of the partnership would revert to Cyber.

The net assets of the division had a carrying value of $12 million at the date of sale, September 1, 2017. Cyber has been informed that the partnership will be reporting a loss of $5,030,000 for the nine months ended May 31, 2018 which is its first fiscal year end. Cyber has also been advised that the partnership incurred a cash flow deficiency from operations of $2,100,000 during this period.

Cyber's investment in the partnership is reported on the draft balance sheet in the amount of $4,975,000 and the draft income statement includes a gain on the sale of the division of $13,000,000.

*Identify the accounting and audit issues*