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You are the audit senior on the Ontario Navy Activewear Inc. (ONAI) audit engagement and this is the first year your firm is completing the

You are the audit senior on the Ontario Navy Activewear Inc. (ONAI) audit engagement and this is the first year your firm is completing the audit for the year-ended December 31, 2020.  Previously, the audit was conducted by a local sole practitioner. 

The previous auditor has agreed to allow your firm to review the prior year working paper file.  The audit manager asked you to review various components of the file.  The following are excerpts you reviewed from the previous auditor’s audit file:  


Accounts Payable and accrued liabilities

At the year-ended December 31, 201 accounts payable consisted of amounts owing to 20 different suppliers.  Positive accounts payable confirmations were sent to all 20 suppliers.  All 20 responses were returned and all responses agreed with the amount recorded by ONAI in the general ledger. (All responses have been included in the file in working paper reference # AP100- AP120). This evidence provides 100% coverage of the accounts payable balance and the related assertions. No further work in accounts payable required. 

Contingent Liabilities testing
Catherine Draper prepared and sent an inquiry letter to  ONAI”s lawyers.  The lawyer responded directly to Catherine by letter dated January 26th, 2018.  The lawyer’s response indicated that there were no claims outstanding against  ONAI.  A copy of the letter provided by Catherine has been attached to the audit file in WP # CL 100.  No further work is necessary.  

Subsequent events testing
As per discussion with both Francis and Catherine on February 2nd there were no significant subsequent events.  No further work necessary.

Audit reporting
The financial statements were approved by the board of directors (Catherine and Francis) on February 2nd, 2018 and the audit report was dated February 28th, 2018. 


List 3 major deficiencies in the work performed in the excerpt in the previous page.  For each deficiency, provide the rationale for the deficiency and recommendations regarding the appropriate audit action and/or audit procedure.

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