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EcoSun Inc. (ESI) is a medium-size company that is developing solar energy systems for private residences and small businesses. It is privately owned, with
EcoSun Inc. (ESI) is a medium-size company that is developing solar energy systems for private residences and small businesses. It is privately owned, with the majority of the shares held by the company's president, Shu Mingfei. Started up to years ago, to date, it is mostly involved in research and development, but this year it completed its first customer sales and installation. Shu has engaged your firm to do the current year's audit because she plans to obtain $20 million in debt financing from outside investors to allow further commercialization of the ESI systems. You are now reviewing ESI's preliminary general ledger trial balance in order to begin preparing the audit planning. The following is a summary of the accounts that appear in this trial balance as at year-end: Account Cash Accounts receivable Allowance for bad debts Balance DR/(CR) $ 101,209 85,019 (15,000) Inventory, finished goods 900,550 Inventory, work-in-process 44,666 Inventory, raw material 67,890 Deferred development costs 34,445 Property, plant, and equipment 3,700,990 Accumulated amortization, PPE (901,108) Patents, at cost 1,010,000 Accounts payable (198,009) Warranty provision Shareholder loan, non-interest bearing Share capital, common shares (30,000) (11,000,000) (1,000) 1,364,767 Retained earnings (812,202) Revenue Cost of goods sol 666,502 ENG General and administration expenses Research and development expenses Other expenses 1,002,500 3,990,000 89,990. a. Identify three factors that your firm should consider before agreeing to conduct the audit. b. What economic and industry risks are affecting this business? How would these risks affect the company's financial statements and your overall audit strategy? c. State the dollar amount that you would consider an appropriate materiality level for planning this audit, giving your supporting reasons. Explain why the materiality judgement is one of the first important decisions your team must make in planning this audit. about d. List two analytical procedures you could perform using the trial balance data above (you are not required to calculate any ratios). Explain what each procedure can tell you. the risks in ESI's financial statements. Give one example of additional information you would want to obtain to perform analytical procedures in this audit, and a reason that it would be useful. e. After completing Required A to D you learn the following: ESI had a previous auditor in the prior year and are looking for a new auditor, as they disagree with their previous auditor about their revenue recognition policy. ESI indicated their previous auditor was too conservative. The director of Marketing of ESI, Tracey, suggested your firm because firm. Discuss she heard good things about it and her cousin is a staff accountant for this new information in your consideration to accept this engagement. your
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