Go Far and Have Fun Inc. (GFHF) is a Canadian adventure travel company, which specializes in extreme adventure packages to remote locations around the world. The audit's planning phase was started by the previous audit manager, Mike S. who left the accounting firm earlier this week. The audit partner selected you to take over and complete the planning phase for GFHF's Oct. 31st, 2020 year-end financial statement audit.

The audit partner comes into your office and explains: "We still have time before we start audit field work in late March 2020, so for now, I want you to concentrate on the Acquisition and Payment Cycle only. Keep in mind that GFHF's bank looks at their current ratio to determine the company's lending ceiling and interest rate. GFHF is planning to approach the bank early next year for more financing."

GFHF background information:

GFHF operates its adventure tours through sub-contracting arrangements with local guides, equipment suppliers and security/transportation service providers (sub-contractors) in several countries. The company conducts transactions with the sub-contractors in their local currencies and consequently it had 23 bank accounts at the end of the last fiscal year. GFHF has a number of trusted regional representatives (RRs) who transact with the sub-contractors. Each RR looks after five to eight countries in a specific geographical region and is authorized to open additional bank accounts, which the RR funds through a transfer from an existing account, when a tour is organized in a new country. Most foreign accounts contain a material amount of cash and GFHF only deals with two well-known, large international banks. To reduce delay in preparing the year-end financial statements, GFHF accounting staff sends emails at the end of the fiscal year to each RR, confirming the cash balance in each foreign account.

The RRs always respond promptly, providing the accounts balance through email and then forwarding the year-end bank statements within 45 days. GFHF accounting staff then reconciles the email balance with the statement balance; there has never been a discrepancy noted.

GFHF policy requires each RR to submit a monthly bank statement for each account.

The company's accounting department relies on the RRs to regularly collect and submit invoices for services purchased from the sub-contractors. Sub-contractors (depending on their location) get paid within 5 to 45 days of their service. Usually, sub-contractors give RRs an invoice at the time they are paid, however sometimes the transaction is settled in cash without an invoice. GFHF requires that RRs submit all invoices and a schedule listing the details of cash transactions with no invoice.

Each year 45% of GFHF's total annual adventures take place between July and October.GFHF reports in Canadian dollars.

Acquisition and Payment/Cash audit procedures (prepared by Mike S.):

1. To verify the completeness of total cash balance in the foreign accounts select a sample of bank accounts with a material balance from the cash sub-ledger and trace to the balance noted in the e-mails from RRs.
2. To verify the occurrence of expenses, select a sample of expense invoices and trace their details to the expense sub-ledger.

Required:

a) Explain whether or not each of the procedures prepared by Mike S. would be effective. Make sure to correct the procedure if necessary. (6 marks)

b) List two other assertions that relate to GFHF's cash and accounts payable balances. Develop an audit procedure to address each of the two assertions. (4 marks)