It is September13, 2020. You, CPA, have recently accepted a position as the chief accountant for Rent-a-Bike Inc. (RAB), which is a public bike rental system. RAB offers an alternate means of urban transport through its networks of bike stations located throughout the downtown cores of Toronto, Montreal, Ottawa and, most recently, Halifax. RAB bikes can be rented seven days a week, 24 hours a day. Annual and monthly memberships are available, in addition to a pay-per-use option.

Your new boss, the CEO of RAB, Lochlyn Grace, comes into your office with the following news:

"We've experienced strong growth since our opening just four years ago and have a number of exciting new projects on which I'm eager to get your input. As you know, our plan is to maintain our momentum. But before we discuss that, there is another, more immediate issue I need your help with.

This summer we received a grant from the Ontario Ministry of Tourism, Culture and Sport to install additional stations and provide extra service during the Canada Games, which took place in Ottawa in June (Exhibit I). I know we are supposed to report our compliance with the grant requirements. Is this covered as part of the regular audit? If not, what do you think the Ministry will require? Please be specific, as I'd like to know which potential reports could be prepared."

Exhibit I

Excerpts from Ministry grant agreement

The following excerpts have been taken from the agreement between Rent-a-Bike Inc. ("RAB") and the Ministry of Tourism, Culture and Sport (the "Ministry"), dated April12, 2020.

1.RAB will install eight stations at specific locations in Ottawa, as dictated by the Ministry, by June1, 2020.

2.RAB will maintain a minimum of one bike and a maximum of nine bikes at each station between the hours of 8a.m. and 11 p.m. for the period from June15 to June30, 2020. Any variations from the established minimum and maximum numbers shall last no more than 15 minutes.

3.RAB will provide a dedicated maintenance/service truck on call for the eight stations between the hours of 8a.m. and 11 p.m. for the period from June15 to June30, 2020.

4.Effective July1, 2020, RAB will be permitted to maintain the stations at these locations permanently, without rental charge by the City of Ottawa.

5.The Ministry agrees to provide RAB with a payment of $150,000 on June1, 2020.

6.The Ministry requires a report from RAB's auditor supporting that the terms in this agreement have been abided by. This report is due February14, 2021.

Question 1: Analyze and recommend a report that RAB's auditors could prepare. Be sure to consider valid alternatives.

Question 2: Provide procedures that the auditors could perform for Clauses 1, 2, and 3