GreenLeaf Enterprises

Today is August 6, 2023, and you, as a Certified Public Accountant (CPA), hold a managerial position at Laurentian & Cambrian LLP, a regional accounting firm situated in Sudbury, Ontario. You have been recently assigned to undertake the first-year audit engagement for GreenLeaf Enterprises (GLE) following the departure of the senior accountant, Justin, as part of a staff reduction initiative. Your engagement partner, Donald Quill, requested a meeting with you before you assume responsibility for the audit. During the meeting, Donald provided the following insights: "Justin has made substantial progress in the GLE audit, but the audit working paper file remains unreviewed. He mentioned that there are several notes in the file concerning unfinished tasks. Additionally, I need you to identify any potential issues with the work performed by Justin in relation to the key audit risk areas and materiality. Also, please identify and explain the assertions which would be most important for us as we prepare to test Revenue and the new debt we saw in this year." Donald then handed you the current state of the audit file, excerpts of which are shared in Exhibit I below.
 
EXHIBIT I
EXTRACTS FROM AUDIT FILE COMPILED BY JUSTIN

Audit Planning
Background - GreenLeaf Enterprises (GLE) was incorporated in 1994 and adheres to a fiscal year ending on June 30. The company is jointly owned by five investors who are not actively involved in the day-to-day business operations. GLE prepares its financial statements in accordance with the Accounting Standards for Private Enterprises (ASPE).
GLE's core business activities involve the design and installation of interactive computer display terminals in various industrial mills and parks. GLE collaborates directly with clients to develop educational content for the terminals and customizes interactive systems based on client specifications. After content development and the creation of a digital mock-up, client approval is sought. Subsequently, GLE manufactures, installs, and conducts testing of the systems. The company custom manufactures all systems, ranging from basic touchscreen displays to complex multi-screen systems featuring various input and output devices. Typically, GLE records one significant sale annually from their primary customer, the federal government, in addition to several smaller sales for maintenance.
Notably, there has been a notable level of staff turnover, with some employees leaving due to administrative burdens. With this year's decline in sales, the last team member trained for the electric mill terminals product resigned in April 2023. Consequently, GLE decided to discontinue all future sales of electric mill terminals in May 2023, resulting in the cessation of product manufacturing.
Risk of Material Misstatement - The risk level has been categorized as low, given GLE's status as a well-established company and the absence of major changes in business operations during the current fiscal year.
Materiality - Materiality has been set at a relatively high level, equating to 3% of total revenue, calculated as follows: $2,124,609 x 3% = $63,738.
 
EXHIBIT I (Continued)
EXTRACTS FROM AUDIT FILE PREPARED BY JUSTIN

Income Taxes Payable and Future Taxes - In light of the historical losses in prior years, the calculation of current income taxes is based on the net loss for tax purposes multiplied by a 15% rate. It is anticipated that the company can offset the entire loss from this year against significant income earned in 2019.
Revenue Recognition - GLE follows a revenue recognition policy centered on the percentage of completion method at each contract milestone. Payments are due upon contract completion, and historically, uncollectible accounts have remained at nominal levels. However, the forthcoming election and political uncertainties pose a potential threat to GLE's future prospects. In the current fiscal year, GLE's total revenue amounted to $2.1 million, while net income dwindled to $100,000.
Debt Financing - GLE procured new financing from The Regal Bank of Canada during the present year. This financing was secured to support future operations and retain the management team amidst the slowdown in revenue.
In summary, the audit engagement for GLE necessitates a comprehensive examination of income tax calculations, revenue recognition policies, and recent debt financing. The looming political uncertainties further complicate the company's future outlook, warranting a meticulous evaluation.

Question:  ASSESS THE RISKS BOTH THE INHERENT , CONTROL AND DETECTION RISKS. EVALUATE THE MATERIALITY AND ASSERTION  ISSUES ALSO IN PREPARING FOR THE AUDIT.