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Jeff Lebowski is the owner of Gullwing Sales Systems (GSS) a private company that installs computerized point of sale systems at various types of restaurants,

Jeff Lebowski is the owner of Gullwing Sales Systems (GSS) a private company that installs computerized point of sale systems at various types of restaurants, coffee shops and ice cream parlours in Southwestern Ontario. Jeff owns the majority of the shares of the corporation with his wife Rita owning the remaining minority shares. Jeff recently switched auditors as he decided to hire his friend from their days at Odette, Berta Behr CPA to perform the companys annual financial statement audit. Even though GSS is not a pubic corporation, Jeff needs audited financial statements as a condition of the private financing he has obtained through a distant relative who is independently wealthy. Berta received her Chartered Professional Accountant (CPA) designation recently and was eager to make some money to pay off her student loans to Odette and the bank. As Berta is desperate to start earning money as a professional and to help pay for her past debts, Jeep Wrangler lease payments and continuous on-line shopping she has offered Jeff a discount and promised to perform the audit for 15 percent less than any other accounting firm. Jeff is also interested in having the audit completed promptly and has told Berta that while she is completing the audit he will provide her with his preferred customer card so that she can visit any of his customers and upon presenting the card will enjoy 25% off all purchases at these locations. The private investor (rumoured to be Mr. Wonderful from Shark Tank and Dragons Den fame) is also anxious to review the audited financial statements. While being independently wealthy he has a sharp business mind and has maintained his wealth by frequent oversight of his investments. The private investor told Jeff that GSS must have a clean audit opinion in that it must be an unqualified/unmodified opinion and nothing else. Berta assured Jeff that this should not be a problem as she has just finished her Certified Fraud Examiner exam (CFE) and because of this increased knowledge her work on the audit would be superior to that of the other much older auditors like the previous auditor of GSS. The previous auditor for GSS was Tony B. Aloney CPA who retired at the age of 75 to play golf year-round in Florida. Berta mentioned that Tony, while being a super nice guy, may not have been up to todays standards in auditing and fraud or the current accounting standards. Berta also felt obligated to help out her former Odette friend Jeff as a few years back after Berta had graduated from Odette and was working on her CPA designation, she needed someone to cosign the lease of her Jeep. Jeff agreed at that time to be the guarantor of the lease and Berta was able to drive her shiny black Jeep. Based on their several years of friendship, Berta did not attempt to contact the previous auditor Tony, as he had moved away. While Jeff had Tonys contact info, Berta never did ask for it. By discounting her audit fee and promising to perform audits better and faster than other audit firms over a short period of time, Berta was able to attract several other new clients. Part of Bertas strategy is based on a term called leverage. Berta would hire 3rd and 4th year Odette students who were in the process of completing the Audit I and Audit II courses to help her with these audits. Berta paid these students as independent contractors and paid them cash weekly based on their hourly rates. The audit of GSS was scheduled to start in late February. GSS has a January 31st year end as this is the slow time for their customers in the hospitality industry and as such is the slowest time of the year for GSS. Jeff sometimes goes down to Florida in the middle of February to go watch the Daytona 500 with the prior auditor Tony and do some golfing. It is now late February 2020 and Berta has a problem. Her independent contractors from Odette have reading week and most of them have decided to go away to Belize on vacation as they saved all of their monies that Berta had paid them. Berta is very busy with the other clients who she had signed up, she must complete their audits as well as their corporate tax (T2) returns. Her only remaining independent contractor is Jerry Jonas who did not have the money to go away with the others. Jerry has a brother, Josh who completed 2 years of the 4-year B. Comm. Accounting program at Odette but never did the 3rd or 4th year audit courses. Their goal is to start up a consulting business, calling it Double JJ Accounting Services. Jerry has told Berta that Josh is currently between jobs and is looking to do some work. Josh will gladly accept half the hourly rate that Berta is paying Jerry. Josh has watched several You Tube videos on auditing and feels he will be able to rely on his financial accounting knowledge to assist in the audits. Jerry has stated that he will oversee the audit part of the engagement and Josh will do most of the financial accounting analytics and the two are confident they will get the audit work completed on time as they will not play any online video games until they have the work completed. Jerry will also prepare the T2 Corporate Tax Return for GSS once the audited financial statements have been completed as he did one of his co-op terms at H & R Block mostly completing T1 Generals for individuals. As this will be the first audit that Jerry and Josh have completed together, Berta has provided them with a prior audit file with completed working papers for a local cannabis manufacturer where an unqualified/unmodified opinion was provided. Also included in the audit file was the audit plan and time budget. Berta advised Jerry and Josh that since they now have the template of an audit that it should take them even less time than it did for her to complete the audit of the cannabis manufacturer. Berta through her discussions with Jerry and Josh also found out that Jeff is married to their cousin Sophia and that he had coached them in house league soccer for about 5 years when they were younger. As well, the Controller of GSS, Ashely Dowell is Jeffs niece from his side of the family. Ashely mentioned to the Jerry and Josh that they were looking for an additional accountant for the upcoming year and that she would be interested in hiring one of them and perhaps both if the sales volumes increase. As Berta was busy with her other clients, she was only able to drop by GSS and meet with Jerry and Josh on one occasion over the 2 weeks of the field work for the completion of the audited financial statement opinion and the T2 Tax Return. When she did drop by she did bring coffees and pastries that she purchased with her 25% off preferred customer card that Jeff had provided her with. Berta explained that she likes to take care of her employees and that auditors drink a lot of coffee. Jerry was able to utilize some of the knowledge he had obtained in his 3rd and 4th year audit classes. He knew that the auditors are responsible to attend and observe the end-of-year inventory count to verify that the proper procedures were in place and where necessary to help out and count items if the staff were not working fast enough. Since GSS had such great volume in their products where a customer may call and want to change all of their point of sale equipment in a short period of time, GSS had both a retail location by the University of Windsor and a warehouse located in the county in Tilbury about 55 kilometres away. As the rent in Tilbury is much less than in Windsor, approximately 95% of the inventory is stored there and this also helps keep shipping costs down and speeds up response time for sales made east of Tilbury in the London area. Jerry found out that Berta did not attend the warehouse location on January 31st as there was a snowstorm that day. Even though Berta has a very new Jeep with 4-wheel drive, she was not able to attend the Tilbury location until mid-February as she was working at another clients location and dropped by the GSS warehouse on her way to see her other client to complete their T2 that day. Berta did attend the retail outlet of GSS in Windsor at around 2 pm on January 31st and stated that there were very few staff on hand to help out, so she helped count and record the inventory. She also stated that because they were short staffed, they worked independent of each other and there was no second count of the inventory, only the initial count was completed. Once Jerry and Josh had completed their audit working papers and the T2 Corporate Tax return, they brought them to Berta to meet with her. Berta explained that due to her workload with clients and a new opportunity she has been offered to work at one of the local Big Four audit firms she had very little time to review them. She asked Jerry and Josh if they felt that all the documents were properly prepared and that since there was a refund due to GSS for their T2 Corporate Tax return which was less than $500 so it is unlikely that CRA would audit that return. Upon confirmation from Jerry and Josh, Berta prepared the opinion section of the financial statements and provided an unmodified/unqualified opinion that they were fairly stated in all material aspects. Berta also submitted the T2 to CRAs on-line filing system using Jeffs username and password that he had provided to her. Additional Information about GSS. Jeff predicts that demand for his distribution of systems will continue to grow in the area to the east of his usual sales area which provides great opportunity for expansion. He would like to open another sales/warehouse location in Woodstock near the 401 to serve the area from Woodstock to Brampton. This would likely be a location that is leased at a cost of $7,500 per month and require the signing of a 4-year irrevocable lease with 6 months of rent pre-paid before they can occupy the leased space. Jeff has approached his suppliers about extending the current terms of his payments to them which are currently sitting at net 30. He would like to have terms of net 60 or even net 90 but so far he has not been able to persuade his top 3 suppliers of these terms. Jeff has expressed to the suppliers that he is required to hold a large amount of inventory for his customers as often times he has experienced delays in getting his shipments from the suppliers which then jeopardize his relationship and contracted delivery requirements with his customers. The suppliers contend that the delays are due to GSS not making payments within 30 days which then results in the inventory shipments being placed on hold until payment is made by GSS. The contingency plan in place by Jeff if he is not able to obtain extended terms from his suppliers is to approach his bank, the Bank of Wawa for a line of credit. The Bank has indicated it will review the line of credit application but will also need audited financial statements prepared by a CPA, LPA as part of its review process. The current business account at the Bank of Wawa has sufficient funds to pay rent at both locations and the employees salaries as GSS has accounts receivable that have doubled over the past year while sales have only increased by 20%. Jeff has not drawn a salary or dividends in the past 6 months to conserve cash. GSS is currently involved in a litigation claim by several former customers who purchased point of sale systems from GSS. These customers have been audited recently by CRAs HST Audit function and have been assessed combined amounts of approximately $350,000. The lawsuit contends that GSS improperly programmed these point of sale systems and they are suing GSS for recovery of the monies they have had to pay CRA to settle their tax compliance audit assessments which includes almost $50,000 in penalties and interest. Required: In proper form, identify and discuss how any actions taken or not taken during the audit that have resulted in a failure to comply with the CPA Way guideline for ethical behaviour by Berta as well as any actions taken by Berta and her audit team in the completion of the audit that do not comply with the Generally Accepted Audit Standards (GAAS) for the attestation engagement and which may have affected the opinion provided.

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