i need help in this auditing assignemnt which needstwo memos. i will tip more reward for a good answer.i have attached the outline (project notes).

Project notes Quants you do should be in an appendix at the end of your memo You are doing two memos - one to the audit partner and one to EF's management o Should have heading as MEMO - to, from, subject and date. o Appendixes in the back of each memo it relates to - with reference to it in the written part. There is NO page limit - however it should be concise - I am not looking for a novel. Some things like approach will only be a paragraph while accounting issues will be longer because there is more than 1. It is individual When writing the memos - the first memos ask for you to prepare analytical of FS, Audit planning memo and look at accounting issues I would suggest it go into a format like below: Also refer to the hand out I gave you about having proper intro, identifying issues, analyzing issue, having a recommendation and conclusion. Ask for help when you need it. First memo - to audit partner Planning analytical Review of FS: As per my review of the FS (see appendix) I highlighted these accounts as..... Audit planning memo: Risk: Approach: Materiality: Accounting issues & procedure to do: Other procedures to do (based on professional judgement): Second Memo - To Ef's management: Little intro: Weakness , implication, recommendation Conclusion Stella Foods Inc. Balance Sheet As at June 30 2017 (unaudited) Assets Current Assets Accounts Receivable Inventory Prepaid & Deposits $ 5,343,373 $ 6,990,279 330,797 12,664,449 4,573,756 6,130,871 261,581 10,966,208 20,464,376 19,845,498 $ 33,128,825 $ 30,811,706 $ 4,879,700 $ 6,563,522 784,764 12,227,986 4,234,000 4,999,701 838,199 10,071,900 2,677,480 342,300 15,247,766 3,434,021 301,890 13,807,811 100 17,880,959 17,881,059 100 17,003,795 17,003,895 33,128,825 $ 30,811,706 Property Plant and Equipment Liabilities Current liabitlies Revovling line of credit Accounts payable and accrued liabilities Current portion of long-term debt 2016 (audited) Long term debt Future income taxes Shareholder's Equity Common shares Retained Earnings $ - - Stella Foods Inc. Income Statement For the years ended June 30 2017 (unaudited) Sales $ 2016 (audited) 64,131,262 $ 62,468,707 Cost of sales 41,685,321 41,677,506 Gross Margin 22,445,941 20,791,201 16,526,626 2,103,445 592,123 2,677,800 21,899,994 12,791,706 2,206,422 595,435 2,445,780 18,039,343 Expenses Selling and delivery General & Admin Interest Amortization Foreign Exchnage gain Gain on revluation of plant 236,000 508,000 - Income before taxes 1,289,947 2,751,858 Income taxes (32%) 412,783 880,595 Net Income $ 877,164 $ 1,871,263 MEMOR ANDUM TO: ENGAGEMENT PARTNER AT MATTHEW AND JAMES LLP FROM: AUDIT SENIOR, CPA SUBJECT: AUDIT PLANNING MEMO & OTHER ISSUES DATE: As per your request I have prepare a memo that discusses the planning analytics, audit planning memo, and accounting issues and audit procedures . 1) Planning Analytics: One or two paragraphs summarizing your analytical work that should be done in excel. These can be comparison from year to year and some ratio analysis. 2) Audit Planning Memo: Risks: 5-7 risks o Overall or big picture risks are things that are high level risks. For example complex transactions or competitive environment are high level risks o Assertion/Account level risks are risk that affect specific accounts/assertions. Example are risk is high due to client recording revenue too early therefore risk of occurrence for revenue is high. o Can be a mix of both types! Doesn't matter Approach: Based on risks Materiality: Provide both quantitative and qualitative analysis supporting your figure for preliminary materiality. Note this is now 10 marks not 5 marks Procedures: Can talk about procedures here or with accounting issues doesn't matter Remember to state the purpose (the assertion) and the procedure/objective (\"good words\"). (You should have 8-10 good audit procedures) 3) Accounting Issues & Audit procedures: On project it says to identify and assess two accounting issues NOTE - you do not need a lot of detail. I just want you to be able to identify that there is an issue - if you can`t find it in the hand book or your text book you can ask me or you can just explain it based on your understanding. I am not going to be marking for technical as much as you identifying that something is risky and making procedures around it. Don`t get too stressed out about this part! Doesn't need to be long! Accounting Issue 1: Criteria or reason it is an issue: Recommendation/Impact: Procedure: Accounting Issue 2: Criteria or reason it is an issue: Recommendation/Impact: Procedure: 4) Discuss the importance of documentation in the audit file and identify which parts of the audit file require documentation. 5) Conclusion: MEMOR ANDUM TO: MANAGEMENT AT EURO FOODS FROM: AUDIT SENIOR, CPA SUBJECT: CONTROL WEAKNESSES AND RECOMMENDATIONS DATE: per your request I have prepare a memo highlighting control weaknesses identified, their implications and some recommendations Weakness Implications Recommendations As Audit Project - Due December 6, 2017 Stella Food Inc. Stella Foods Inc. (SFI) is a manufacturer and importer of Italian foods. SFI was a private company until July 2016 when all of the outstanding shares were purchased by Euro Foods (EF), a European public company. Since SFI's bank requires audited financial statements as a condition of its loan, EF has requested that its auditors, Matthew and James LLP (MJ), provide an opinion on SFI's stand-alone financial statements. SFI's financial statements were previously audited by another accounting firm. It is now July 2, 2017 and you, CPA, are an audit senior in the Toronto office of MJ. You were recently assigned to the SFI engagement. SFI's year-end is June 30. EF is listed on a European stock exchange that requires it to prepare its consolidated financial statements in accordance with International Financial Reporting Standards (IFRS). As a result, EF has stipulated that SFI's financial statements also be prepared in accordance with IFRS. SFI's bank has agreed to accept the IFRS financial statements for the year ended June 30, 2017 and to use them for any covenant calculations specified in the loan agreement. EF is concerned about the decline in profitability at SFI, particularly since the company has continued to operate autonomously since the acquisition. In addition to the audit engagement, EF has requested that MJ prepare a report outlining any significant control weaknesses that may be impacting SFI's profitability and recommendations for improvement. Your first step was to arrange a meeting with SFI's Controller. At the meeting, the Controller provided you with background information on SFI (Exhibit I) and draft financial statements for the year ended June 30, 2017 (Exhibit II). When you got back to your office, you sat down to review the draft financial statements and your notes from your discussion with the Controller (Exhibit III). Later that day, the engagement partner asked you to prepare the following: 1. Perform the planning analytical review for the financial statements of Stella Foods Inc. analyzing the key movements. Include supporting calculations. (Remember this is the first year that MJ is doing an audit on SFI) (10 marks) 2. Prepare the audit planning memo - including the following: a. Identify key audit risks and explain how each audit risk could result in a material misstatement in the financial statements. Your answer should include identifying the risk, what the impact is (increase or decrease risk) and explain the risk. Remember to do this at the overall financial statement level and at the assertion level. (15 Marks) (Give 5-7 good risks - need both at overall financial statement level - big picture & assertion/account level) b. Design the audit approach you will take based on identified risk. (10 marks) c. Calculate planning materiality for the 2017 year-end audit. Provide both quantitative and qualitative analysis supporting your figure for preliminary materiality. (5 marks) Created by Bruce Densmore Audit Project - Due December 6, 2017 d. Provide audit procedures you will do based on high risk areas. Remember to state the purpose (the assertion) and the procedure/objective (\"good words\"). (You should have 8-10 good audit procedures) (20 marks) 3. Address the accounting issues that are identified with your discussion with The Controller in Exhibit III. ( Hint - procedures should be based on these issues as well) (15 marks) (Looking for 2 accounting issues identified and analyzed) 4. Per EF request prepare a memo to EF's management about the control weaknesses (remember to use the WIR (Weakness, Implication, Recommendation) approach) (20 marks) (You should have 4 control weaknesses) 5. Discuss the importance of documentation in the audit file and identify which parts of the audit file require documentation. (5 marks) EXHIBIT I - BACKGROUND INFORMATION ON SFI Created by Bruce Densmore Audit Project - Due December 6, 2017 1. SFI's manufacturing operation located north of Toronto produces a full range of pasta shapes and varieties. SFI also imports sauces and specialty foods from Italy and sells them under its own brand name, Bella. The Bella line of products is sold by all major Canadian grocers and by a number of specialty food retailers and restaurants. 2. SFI produces dry pasta, which has a shelf life of 12 to 24 months if it is kept in a cool, dry place. The shelf life of the sauces and specialty products imported by SFI varies anywhere from a few weeks to two years. Some of the products require refrigeration, for which SFI rents space in a third party refrigerated warehouse. 3. Approximately 80% of SFI's sales come from its five largest customers: Loblaw Company, Metro Inc., Sobey's,Costco Canada and Walmart Canada. The remaining 20% of SFI's sales are to smaller independent food retailers and restaurants. 4. All of SFI's building and equipment mortgages, as well as its line of credit, are with the Bank of Italia. The line of credit is limited to $5,000,000 and is repayable on demand if SFI's debt to EBITDA ratio exceeds 4:1. The debt to EBITDA ratio is calculated as: EBITDA = Total liabilities / (Income from continuing operations before interest, taxes, depreciation and amortization) 5. The SFI sales team consists of four experienced sales representatives who report to the Vice President of Sales. The sales representatives negotiate pricing and other terms of the contract, such as volume rebates, discounts, and joint advertising programs, directly with each customer. Each contract is different and there are no formal guidelines in order to give the sales representatives maximum flexibility to meet customer needs. All contracts over $100,000 must be approved by the Vice President of Sales. 6. The Vice President of Sales and the sales representatives receive a bonus based on gross revenue. 7. As is common in the food industry, SFI provides a number of different types of rebates to its customers. Payments include volume rebates of a certain percentage once sales targets are met, fixed amount rebate payments once sales targets are met and payments to the retailers that must be spent on advertising SFI products through such means as flyers or in-store displays. The type and amount of the rebates are determined by the sales representative as part of the contract negotiation process. EXHIBIT I - BACKGROUND INFORMATION ON SFI (continued) Created by Bruce Densmore Audit Project - Due December 6, 2017 8. The purchasing team consists of three purchasers who report to the Vice President of Purchasing. The purchasers each work with an assigned group of suppliers so that they can develop relationships with the supplier and negotiate the most favourable contract terms. It is the purchaser's responsibility to negotiate the terms of the contract. The Vice President of Purchasing approves all purchases over $50,000 but largely relies on the recommendations of the purchasers. Although the purchasers are encouraged to obtain multiple quotes, it is not a requirement since a relationship is often established with one or two key suppliers for a particular item. 9. The financial statements are prepared by SFI's Controller, Anthony Ravalli. Anthony does not have any previous experience with IFRS, but he attended a full day course in February and is confident that he is now \"up to speed\". 10. The company's average interest rate on its borrowings is 7%. EXHIBIT II - EXTRACTS FROM THE FINANCIAL STATEMENTS (ALSO IN EXCEL) Created by Bruce Densmore Audit Project - Due December 6, 2017 EXHIBIT II - EXTRACTS FROM THE FINANCIAL STATEMENTS (ALSO IN EXCEL) Created by Bruce Densmore Audit Project - Due December 6, 2017 EXHIBIT III - NOTES FROM DISCUSSION WITH CONTROLLER Created by Bruce Densmore Audit Project - Due December 6, 2017 New Machine On July 1, 2016, SFI purchased a machine to make lasagna noodles. A specialized machine is required for lasagna production because of the flat shape and larger size of the noodle. The cost of the machine was $1,500,000 and it is being amortized on a straight-line basis over 15 years. SFI projected lasagna sales of $2,500,000 per year; however, sales have been disappointing to date at only $1,100,000 for fiscal 2017. SFI's sales representatives have indicated this level of sales is likely representative of the sales for the next several years. The margin on lasagna sales is approximately 10%. The Controller mentioned that selling the machine is not likely an option because it was custom designed for the factory and there is a very limited market for this type of used equipment. Appraisal In August 2016, SFI engaged a commercial real estate agent to provide an appraisal of the company's plant (land and building). Based on the appraisal, the Controller booked an entry on June 30, 2017 to revalue the land and warehouse to its fair value of $3,000,000. This resulted in a revaluation gain of $508,000. An appraisal for the company's head office (land and building) was not obtained. Rebate Programs The Controller indicated that he spends much of his time dealing with payments to customers on account of the various rebate arrangements negotiated by the sales representatives. Each arrangement is different and SFI does not have any mechanism to formally track the rebate arrangements. The Controller has to rely on the sales representatives to inform him when amounts are payable and to approve the amounts. When rebate payments are made, they are recorded as selling and delivery expense. EXHIBIT III - NOTES FROM DISCUSSION WITH CONTROLLER (Continued) Created by Bruce Densmore Audit Project - Due December 6, 2017 Inventory The Controller was told by the inventory manager that $175,000 of goods in inventory will expire within the next 60 days, including $100,000 that will expire within the next 30 days. This does not include any products at the third party refrigerated warehouse since the inventory manager relied on the third party to count the goods at their warehouse at year-end. They did not examine expiry dates during the count. When the Controller asked one of the sales representatives about the likelihood that the goods would be sold, the sales representative said that he would certainly have been able to sell them at a special discount if he had known about them earlier. At this point, he was not sure whether it would be too late to sell the goods. He expressed frustration at not being notified sooner. The Controller has not recorded any provision against this inventory on the basis that there is still time to sell the goods before they expire. Accounts Receivable The economic slowdown has made it more difficult for SFI to collect its receivables on a timely basis. As well, SFI's accounts receivable clerk left at the end of May and SFI has not yet found a suitable replacement. In the meantime, there has been no one available to follow up on outstanding balances. There is approximately $190,000 of receivables from small retailers and restaurants that have been outstanding for more than 90 days. The Controller has recorded 10% of this balance as a provision. Created by Bruce Densmore