thiis is a quesiton from auditing. please help me find the solution

QUESTION 15 points BUSI 3170 Deferred Exam Questions 1 to print.pdf Question 1 (15 marks, 30 minutes) Bowen Products Incorporated (BPI) is a public company, listed on the Toronto Stock Exchange (TSX), that manufactures and markets various types of medical equipment that monitors patients' vital signs (i.e., heart rate, breathing, blood pressure). BPI has been audited by Top & Zip, a large public accounting firm, since its inception 10 years ago. You are the audit senior responsible for the March 2020 year-end audit. Within the next day or two, you will be meeting with the audit manager to go over significant accounting and audit issues regarding the revenue cycle The net loss for the first nine months of the current fiscal year and the previous two years are below: (in thousands of dollars) 9 Months Ended December Year Ended March 31, Year Ended March 31, 31, 2019 (unaudited) 2019 (audited) 2018 (audited) Net loss (3.900 (3.150) (2,600) Over the past week. you have been updating the preliminary planning related to the revenue cycle, visiting BPI's premises, and interviewing the client staff. Your notes are summarized below. 1. The preliminary materiality is based upon revenue and overall materiality is set at $250 000. Performance materiality is $200 000. Due to each hospital contract being unique. inherent risk for revenue recognition is high; however, controls have been effective: therefore risk of material misstatement is set at moderate. 2. Top and Zip & Zhang have relied upon internal controls in past audits. The internal control environment is strong The staff members in the accounting area are competent and there is adequate segregation of duties. Based upon your update and testing of the systems, no changes have occurred in the Click. Save and Submit to save and submit. Click Save All Answers to save all answer Save All Answers Close Window Save andckboard New Tab X CO A Question Completion Status: 1. The preliminary materiality is based upon revenue and overall materiality is set at $250 000. Performance materiality is $200 000. Due to each hospital moderate. contract being unique, inherent risk for revenue recognition is high; however, controls have been effective; therefore, risk of material misstatement is set at 2. Top and Zip & Zhang have relied upon internal controls in past audits. The internal control environment is strong. The staff members in the accounting area are competent and there is adequate segregation of duties. Based upon your update and testing of the systems, no changes have occurred in the accounting area. However, your documentation of the processing of revenue reveals that BPI has begun to expand into foreign countries through distributor agreements. This is different from its usual customer base of Canadian hospitals. Your preliminary discussions with the VP sales reveal that initial contacts with the distributors are made through foreign trade shows. He notes that before signing a deal, BPI does background and credit checks on the companies. However, the quality of information received varies by country. 3. Your review of foreign revenue reveals that BPI has entered into a distribution agreement with a Russian distributor for a five-year period commencing June 2020. BPI is quite excited about the agreement since the opportunities in Russia are vast-a significant portion of the hospital medical equipment in the country is worn and needs replacement. BPI believes this agreement has phenomenal prospects since the distributor is established and knows which hospitals are refurbishing and have money. As part of the agreement, the distributor has paid BPI an up-front and non-refundable fee of $250,000. BPI has recorded the fee as part of its current revenue. As part of normal Russian business practice, the distributor pays the individual hospital administrator a commission for agreeing to purchase BPI products. Each month, the distributor will submit a list of individuals who have received the commission and BPI will reimburse the distributor the amount. Although no hospital sales have been finalized, the distributor has received agreement to purchase from BPI from three separate administrators. The distributor has paid them each a commission of $5,000. The distributor has requested that BPI reimburse them for the $15,000. Required Part 1. Explain how the new expansion of BPI to foreign markets will impact your risk assessment for BPI, specifically focusing on the revenue cycle. (10 marks) Part 2. Identify some possible audit implications of the recent COVID 19 outbreak on the audit of BPI. (5 marks) For the toolbar, press ALT+F10 (PC) or ALT+FN+F10 (Mac) 3 (12pt) DiRa