Question3-6

PART I You are on the independent audit team conducting an audit of Lawrence Diabetes Research Foundation (LDRF), a 501(c)(3) public charity. The audit team intends to obtain reasonable assurance about whether LDRF's financial statements are prepared, in all material respects, in accordance with U.S. GAAP. LDRF has been a large client of your employer, Cooper CPA LLC, for three years. As the audit for the fiscal year ended June 30, 2022 (i.e., the current fiscal year audit) begins to wrap up in August 2022, an audit associate on your audit team sends you an email about a possible issue. Earlier in the engagement, while scanning the client's records for large, post-year-end transactions, he had noticed a bank deposit entry of $5,000,000 on July 9 . He wrote a to-do note to himself to follow up on this transaction with client personnel. Caught up in the usual time pressures of the job and not really anticipating the deposit entry would be an issue, the audit associate had simply moved on to other matters. As the audit was winding down, the audit associate noticed the outstanding issue on his to-do list and investigated. The amount did not appear as a deposit-in-transit on the June 30 bank reconciliation prepared by the client, thus indicating the amount presumably was received by LDRF subsequent to the current fiscal year-end, perhaps in July. It was common for LDRF to receive large grants early in a fiscal year, but this amount was exceptionally large in comparison to amounts received in the past. The audit associate is apologetic for bringing up this matter so late in the audit engagement. While displeased by his failure to follow up on this item in a timely manner, you ask him to determine the nature and source of the $5,000,000 deposit and report back as soon as possible. Later that afternoon, the audit associate consults briefly with LDRF personnel regarding the nature and source of the transaction. He reports back that the client said the entire $5,000,000 represented a bequest made to LDRF in the will of a local philanthropist, whose wife had died of complications from diabetes several years ago. No donor restrictions were imposed on the $5,000,000. He further reports that the client received the check in July 2022. Based on what the client had told him, the audit associate concludes the $5,000,000 gift should be recorded in the next fiscal year, and perhaps a footnote disclosure in the current year's financial statements would be appropriate given the materiality of the amount. PART I You are on the independent audit team conducting an audit of Lawrence Diabetes Research Foundation (LDRF), a 501(c)(3) public charity. The audit team intends to obtain reasonable assurance about whether LDRF's financial statements are prepared, in all material respects, in accordance with U.S. GAAP. LDRF has been a large client of your employer, Cooper CPA LLC, for three years. As the audit for the fiscal year ended June 30, 2022 (i.e., the current fiscal year audit) begins to wrap up in August 2022, an audit associate on your audit team sends you an email about a possible issue. Earlier in the engagement, while scanning the client's records for large, post-year-end transactions, he had noticed a bank deposit entry of $5,000,000 on July 9 . He wrote a to-do note to himself to follow up on this transaction with client personnel. Caught up in the usual time pressures of the job and not really anticipating the deposit entry would be an issue, the audit associate had simply moved on to other matters. As the audit was winding down, the audit associate noticed the outstanding issue on his to-do list and investigated. The amount did not appear as a deposit-in-transit on the June 30 bank reconciliation prepared by the client, thus indicating the amount presumably was received by LDRF subsequent to the current fiscal year-end, perhaps in July. It was common for LDRF to receive large grants early in a fiscal year, but this amount was exceptionally large in comparison to amounts received in the past. The audit associate is apologetic for bringing up this matter so late in the audit engagement. While displeased by his failure to follow up on this item in a timely manner, you ask him to determine the nature and source of the $5,000,000 deposit and report back as soon as possible. Later that afternoon, the audit associate consults briefly with LDRF personnel regarding the nature and source of the transaction. He reports back that the client said the entire $5,000,000 represented a bequest made to LDRF in the will of a local philanthropist, whose wife had died of complications from diabetes several years ago. No donor restrictions were imposed on the $5,000,000. He further reports that the client received the check in July 2022. Based on what the client had told him, the audit associate concludes the $5,000,000 gift should be recorded in the next fiscal year, and perhaps a footnote disclosure in the current year's financial statements would be appropriate given the materiality of the amount