1. It is August 15, 2022, and you, CPA, are called into the office of Jacinda Ardern, a partner at Princess & Gonsalves.

"We already begun actual work on the audit of Nilsson Technology Systems Inc. (NS), which operates across the nation," Jacinda explains. NS specializes in the selling of software as well as new and refurbished hardware.

"During the audit, the engagement's lead staff member departed the business to seek another opportunity. I'd want you to review the work that has been done so far to identifying financial transactions and their handling. Additionally, please provide comments about any accounting concerns identified in the June 30, year-end file.

"Although NS has lost money in the past, management anticipates profitability in the future as a result of the company's new line of business selling refurbished servers. NS has been a listed company on the stock market for almost five years and is subject to International Financial Reporting Standards (IFRS).Total marks (75)

Inventory (15 Marks)

NS purchases used or broken point-of-sale (cash registers, bar code scanners, etc.) and fixes and resells them. Any product that needs extensive repair or replacement components is scrapped. When NS finds that the flaws are not worth addressing, inventory is reclassified from components to scrap in the accounting records.

EXCERPTS FROM WORKING PAPER FILE

On June 30, I attended the inventory count and conducted test counts from sheet to floor, obtaining the following results:

	Units per NS	TotalCost	Units per Test Count	Difference
Stationary scanners	2,007	$ 404,842	2,009	(2)
Broken registers	626	585,934	623	3
Refurbished servers	372	208,994	372	0
Portable scanners	452	214,411	452	0
Debit machines	194	236,187	194	0
Scrap	403	199,101	403	0
Total Inventory		$ 1,849,469

• Agreed to balance sheet

Given that my checks came close to the numbers supplied, I determined that the inventory posed no problems. There were a few piles of goods I didn't count, but since they weren't listed, I believed they were scrap items that had been written off.

Receivable (25 marks)

NS loosened its credit-granting policies in the first quarter of 2021. The credit manager explained that she was told to "not make the customers jump through so many hoops." This change has resulted in increased sales for NS. Total sales revenue for the 2021 fiscal year are 18% higher than 2020's sales revenue. A year-end analysis of AR aging for 2021 with 2020 comparatives is as follows:

	31, 2021	31, 2020
Under 30 days	$2,000,000	$2,250,000
31-60 days	2,500,000	2,000,000
61-90 days	1,400,000	1,300,000
91-120 days	1,500,000	350,000
More than 120 days	1,000,000	100,000
Total	$8,400,000	$6,000,000

Consistent with prior years, an AFDA equal to 5% of total AR was reported in the financial statements

New Line of Business ( 35 marks )

NS started to sell refurbished servers throughout the year. This new line of business has been very successful, with NS selling around 2,000 servers this year, generating roughly $5 million in sales. A two-year maintenance plan offered by NS is included in the server's pricing. Similar maintenance agreements are available for purchase for $500. When servers are supplied to customers, NS captures the total revenue. Following delivery, NS install the servers and requests signatures from clients confirming that the servers interface correctly with their system. NS spends an average of two weeks installing each server and ensuring correct integration with the customer's system. NS requires payment within 30 days of shipment. Collection rates have been strong thus far.

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