Integrative Case StudyArmstrong, Aldrin & Collins Professional Corporation Armstrong, Aldrin & Collins Professional Corporation (AAC) operates a public accounting practice that is located in Woodstock, Ontario. AACs common shares are owned equally by its three shareholders, who are Chartered Professional Accountants (CPAs). A plan to open an office in Stratford, Ontario, on November 1, 2023, has been developed. Financing has been arranged with the bank subject to AAC providing the bank with its audited financial statements prepared in accordance with Accounting Standards for Private Enterprises for the fiscal year ending September 30, 2023, and for subsequent fiscal years. AAC has engaged Smithee & Co., CPAs, to perform the audit of AACs financial statements for the year ending September 30, 2023. You, a CPA, have been assigned the role of audit senior on this engagement. It is July 25, 2023, and Roberta Payette, the engagement partner, calls you into her office and says: I want you to prepare the audit engagement planning memo for the AAC audit. Please consider the risk and appropriate audit strategy. You should note that AACs financial statements have not been previously independently audited or reviewed. The partner continues: AAC has implemented a new working paper preparation and maintenance system and the shareholders have asked us to identify any weaknesses in the system and to provide recommendations for improving the system. The shareholders want the new system to provide proper quality control for AAC. I want you to prepare a draft report that addresses this client request. Background information AAC was formed seven years ago and has experienced rapid growth. AAC has hired three university graduates who will start work in September 2023. Roberta says that Wally Cunningham, AACs controller, is responsible for setting accounting policies because the shareholders are too busy growing the business to spend time on internal accounting matters, and Wally has a university accounting degree and knows what he is doing. However, Wally has recently found it difficult to keep up to date with auditing and accounting standards.

NOTES PREPARED BY THE PARTNER ABOUT THE NEW WORKING PAPER PREPARATION AND MAINTENANCE SYSTEM Background information A new working paper preparation and maintenance system was developed during the three months from November 2022 to January 2023. The new system, which became effective on February 1, 2023, allows for the storage of all working paper files on a secure website from which a clients information can be accessed, worked on, and reviewed from any place having an Internet connection (e.g., the AAC office, client offices, residences of staff members, and hotel rooms). Passwords The website is a secure site that uses 128-bit encryption for any interaction with remote computers. Each authorized AAC staff member is assigned a personal password that allows access to the system and records who uses the system and the names of the files opened. These specific passwords are stored on each staff members computer, which allows for quick and automatic login once the site is connected by the Internet browser. After login has been achieved, the staff member starts the working paper preparation software, ClientPrep, and can use any element of this program. Software The ClientPrep software includes audit and review engagement assurance planning templates, standard audit program forms and working paper templates, and standard correspondence forms. When the ClientPrep working papers are completed, the software produces financial statements using standard templates, with standard note disclosures. An AAC partner can access and review any portion of a working paper file on which a staff member is still working. Updates ClientPrep is updated annually; however, revisions are made immediately for any income tax changes or programming errors that are identified. The annual update (or any other revision) of ClientPrep is sent directly to the website host, which makes the necessary changes to the ClientPrep program stored on the server and sends notification of the change to AAC. When AAC wants to change the graphics or the links on the website, Michelle Collins (an AAC partner and the designated information technology officer) sends an email to the website host requesting that the desired changes be made. Backup and security Each week the entire population of working paper files is copied from the server to the cloud for storage. The website host prepares a report indicating those AAC staff members who have accessed files during the week and the time of each access. The AAC shareholders are concerned about the possibility of the website being infected with a virus, which could not only destroy client documentation but also prevent staff from viewing and working on client files. To address this concern, the website host scans the client data and other files used by AAC consistently using a well-respected anti-virus program.

Required

Prepare an audit planning memo considering the audit risk and audit approach. Prepare a draft report that addresses the control weaknesses of the new system. For each item, address the implication and make a recommendation.