What is the problem statement for this case?

why inventory valuation was improper?

Tyler's Travelling Circus Co. It's October 10, 2021, and you, CPA, work as an audit senior at Chow and Co. LLP. One of the firm's long-time clients, Tyler Wallace, owns a group of companies, and recently added a new addition to the group with the creation of Tyler's Travelling Circus Co. (TTC). TTC is an outdoor circus that travels across Canada from early spring to late fall. Dave Warren is the circus manager. Since Tyler operates numerous companies, he relies on Dave to run the day-to-day operations of TTC, with minimal oversight. Dave's annual bonus is based on a percentage of pre-tax net income per the audited statements. Dave's brother, Ryan, travels with the circus and has been doing the bookkeeping because he knows the accounting program a little. TTC travelled to 24 cities in the year, and it opened for four days in each city. You are the audit senior for TTC's first year, which ended on August 31. The year-end date was selected to match Tyler's other companies. The partner has requested that you prepare an audit planning memo and analyze any financial reporting issues prior to beginning fieldwork. Your memo should include procedures to be performed in response to any financial reporting issues identified. Engagement acceptance procedures have already been performed. You have gathered TTC's draft financial statements (Appendix I). The audit is a specific requirement under the bank financing covenants, and TTC follows accounting standards for private enterprises (ASPE). Tyler has also asked Chow and Co. LLP for an assessment of where controls are lacking in its current processes, and recommendations on any improvements. Tyler has indicated that the current processes are manual because TTC is just starting out, but that he wants to automate as many of the controls as possible. The partner has requested that you draft a management letter to address this. TTC was in Vancouver in mid-September. You attended the Vancouver performance and noted your observations (Appendix II). You then met with Ryan and obtained additional information (Appendix III). While you were talking with Ryan, an employee burst in and said one of the trailers had been accidentally set on fire by the fire eater. By the time you both arrived at the trailer, the fire had been put out, but $20,000 worth of equipment stored in the $10,000 trailer had been destroyed. Appendix I (continued) Draft financial statements Notes: 1. All the concession inventory purchases are posted to inventory, and they are expensed when sold. No inventory count was performed at year end. 2. During the year, TTC acquired a significant number of assets. Included in these acquisitions was the purchase of a. four large trucks from Big Truck Trucking Co. (BTT), b. a long-haul transport company, for $250,000 cash. TTC recorded them at the exchange amount of $250,000, in the financial statements. c. Tyler owns 70% of BTT. d. The other 30% is owned by an unrelated party. e. The trucks had been used in BTT's long-haul trucking business and had a remaining net book value of $200,000 on BTT's balance sheet. Similar trucks sell in the market for $300,000. Appendix II Notes from CPA's circus visit 1. I go to one of the ticket booths. They only accept cash. When I pay the $20 entrance fee, the Appendix III employee takes my money and puts it in a cash box, then hands me an entrance ticket from a pile of pre-printed tickets. I notice a few disgruntled customers, who have only debit and credit cards with them, turn around and leave. The ticket looks like this: Ryan seemed genuinely thrilled that he finally has you as a resource, because he is still learning bookkeeping. He admitted to often relying on Dave for help, and that this is the first time he has 2. An employee at the entrance gate asks to see my ticket. I show her; she nods and steps been responsible for any bookkeeping. aside to let me through. I put the ticket in my pocket. 3. I see a cage of jaguars. I was excited about the animal exhibits. A huge poster at the entrance Apart from Ryan, Dave is the only employee who knows the file path to the accounting software installed on the office computer, and therefore a password is not required. Ryan had indicated that animals were on loan from the Vancouver Zoo. explained that Dave mainly accesses the accounting records to monitor how things are going. On the road, the staff has access to the office computer so they can check their email and surf The employee tending the cage explains that in cities that have their own zoos, Dave has the internet. arranged for TTC to borrow an animal exhibit from the zoo in exchange for advertising. The employee thinks the idea is brilliant because it would be expensive to rent these animals about $2,000 per day. Dave has made this arrangement in six cities. Every day, Ryan records the day's sales and GST/HST based on the cash in the cash boxes once they're returned to him from the ticket, concession, and game booths (minus the float, of course). He then finds a bank where he can make the deposit. Each concession vendor also submits a He advises me to stand back from the cage, because in Toronto one of the tigers borrowed manual summary sheet of their daily sales, which he uses to update the inventory and cost of from the Toronto Zoo injured a customer. Apparently, the customer told Dave that he has sales accounts. He has yet to figure out how to use the accounting software's inventory module. incurred $15,000 of medical costs related to the incident and that he thinks, morally, TTC Similarly, the game booth staff submit a manual summary sheet of the prizes given away during owes him and should pay for these costs. The employee says, "I hope that Dave adjusted the day. the insurance policy for the presence of animals. Maybe the Toronto Zoo is responsible and not TTC, because it was their animal. Who knows?" Ryan mentioned that inventory levels are restocked at the beginning of each show, so this keeps the amount available for customers reasonably consistent throughout the course of the season. 4. I play a few games and then get a snack. I buy a burger and fries, and watch the vendor place my money in a cash box and mark my purchase on a summary sheet beside the cash box. I then watch him throw several sandwiches in the garbage. I ask why they are being thrown out. He explains that they were yesterday's sandwiches and Tyler has a strict policy of serving food Required: You are the audit senior for TTC's first year, which ended on August 31. Prepare a prepared fresh daily. He says it is a real shame. He's not sure how much food has been thrown out over the past season, because no tracking is done. memo identifying various issues. Perform quantitative and qualitative analysis of each issue, provide relevant accounting/auditing standards, and suggest recommendations for each issue. In this case you are not required to provide alternatives for each issue. Your recommendations must be based on quantitative and qualitative analysis. Presentation Structure Agenda Introduction Your role Issues identified Quantitative and qualitative analysis of each issue including the application of relevant accounting/auditing standard. Recommendation (please note that you are required to provide separate recommendations for each issue). Tyler's Travelling Circus Co. It's October 10, 2021, and you, CPA, work as an audit senior at Chow and Co. LLP. One of the firm's long-time clients, Tyler Wallace, owns a group of companies, and recently added a new addition to the group with the creation of Tyler's Travelling Circus Co. (TTC). TTC is an outdoor circus that travels across Canada from early spring to late fall. Dave Warren is the circus manager. Since Tyler operates numerous companies, he relies on Dave to run the day-to-day operations of TTC, with minimal oversight. Dave's annual bonus is based on a percentage of pre-tax net income per the audited statements. Dave's brother, Ryan, travels with the circus and has been doing the bookkeeping because he knows the accounting program a little. TTC travelled to 24 cities in the year, and it opened for four days in each city. You are the audit senior for TTC's first year, which ended on August 31. The year-end date was selected to match Tyler's other companies. The partner has requested that you prepare an audit planning memo and analyze any financial reporting issues prior to beginning fieldwork. Your memo should include procedures to be performed in response to any financial reporting issues identified. Engagement acceptance procedures have already been performed. You have gathered TTC's draft financial statements (Appendix I). The audit is a specific requirement under the bank financing covenants, and TTC follows accounting standards for private enterprises (ASPE). Tyler has also asked Chow and Co. LLP for an assessment of where controls are lacking in its current processes, and recommendations on any improvements. Tyler has indicated that the current processes are manual because TTC is just starting out, but that he wants to automate as many of the controls as possible. The partner has requested that you draft a management letter to address this. TTC was in Vancouver in mid-September. You attended the Vancouver performance and noted your observations (Appendix II). You then met with Ryan and obtained additional information (Appendix III). While you were talking with Ryan, an employee burst in and said one of the trailers had been accidentally set on fire by the fire eater. By the time you both arrived at the trailer, the fire had been put out, but $20,000 worth of equipment stored in the $10,000 trailer had been destroyed. Appendix I (continued) Draft financial statements Notes: 1. All the concession inventory purchases are posted to inventory, and they are expensed when sold. No inventory count was performed at year end. 2. During the year, TTC acquired a significant number of assets. Included in these acquisitions was the purchase of a. four large trucks from Big Truck Trucking Co. (BTT), b. a long-haul transport company, for $250,000 cash. TTC recorded them at the exchange amount of $250,000, in the financial statements. c. Tyler owns 70% of BTT. d. The other 30% is owned by an unrelated party. e. The trucks had been used in BTT's long-haul trucking business and had a remaining net book value of $200,000 on BTT's balance sheet. Similar trucks sell in the market for $300,000. Appendix II Notes from CPA's circus visit 1. I go to one of the ticket booths. They only accept cash. When I pay the $20 entrance fee, the Appendix III employee takes my money and puts it in a cash box, then hands me an entrance ticket from a pile of pre-printed tickets. I notice a few disgruntled customers, who have only debit and credit cards with them, turn around and leave. The ticket looks like this: Ryan seemed genuinely thrilled that he finally has you as a resource, because he is still learning bookkeeping. He admitted to often relying on Dave for help, and that this is the first time he has 2. An employee at the entrance gate asks to see my ticket. I show her; she nods and steps been responsible for any bookkeeping. aside to let me through. I put the ticket in my pocket. 3. I see a cage of jaguars. I was excited about the animal exhibits. A huge poster at the entrance Apart from Ryan, Dave is the only employee who knows the file path to the accounting software installed on the office computer, and therefore a password is not required. Ryan had indicated that animals were on loan from the Vancouver Zoo. explained that Dave mainly accesses the accounting records to monitor how things are going. On the road, the staff has access to the office computer so they can check their email and surf The employee tending the cage explains that in cities that have their own zoos, Dave has the internet. arranged for TTC to borrow an animal exhibit from the zoo in exchange for advertising. The employee thinks the idea is brilliant because it would be expensive to rent these animals about $2,000 per day. Dave has made this arrangement in six cities. Every day, Ryan records the day's sales and GST/HST based on the cash in the cash boxes once they're returned to him from the ticket, concession, and game booths (minus the float, of course). He then finds a bank where he can make the deposit. Each concession vendor also submits a He advises me to stand back from the cage, because in Toronto one of the tigers borrowed manual summary sheet of their daily sales, which he uses to update the inventory and cost of from the Toronto Zoo injured a customer. Apparently, the customer told Dave that he has sales accounts. He has yet to figure out how to use the accounting software's inventory module. incurred $15,000 of medical costs related to the incident and that he thinks, morally, TTC Similarly, the game booth staff submit a manual summary sheet of the prizes given away during owes him and should pay for these costs. The employee says, "I hope that Dave adjusted the day. the insurance policy for the presence of animals. Maybe the Toronto Zoo is responsible and not TTC, because it was their animal. Who knows?" Ryan mentioned that inventory levels are restocked at the beginning of each show, so this keeps the amount available for customers reasonably consistent throughout the course of the season. 4. I play a few games and then get a snack. I buy a burger and fries, and watch the vendor place my money in a cash box and mark my purchase on a summary sheet beside the cash box. I then watch him throw several sandwiches in the garbage. I ask why they are being thrown out. He explains that they were yesterday's sandwiches and Tyler has a strict policy of serving food Required: You are the audit senior for TTC's first year, which ended on August 31. Prepare a prepared fresh daily. He says it is a real shame. He's not sure how much food has been thrown out over the past season, because no tracking is done. memo identifying various issues. Perform quantitative and qualitative analysis of each issue, provide relevant accounting/auditing standards, and suggest recommendations for each issue. In this case you are not required to provide alternatives for each issue. Your recommendations must be based on quantitative and qualitative analysis. Presentation Structure Agenda Introduction Your role Issues identified Quantitative and qualitative analysis of each issue including the application of relevant accounting/auditing standard. Recommendation (please note that you are required to provide separate recommendations for each issue)