You have just obtained your CPA designation and have decided to open up your own public

accounting office in Saint Laurent. You opened up a current account at the local bank and met

with the Branch manager, Mr. Osmond. You told Mr. Osmond that you have just opened your

public accounting office today and you were eager to get started and find clients. Three days

after your meeting with Mr. Osmond, he called you and told you that he may have a client for

you, Ellys Restaurant that was opened on June 1, 2018. He mentioned that the Restaurant

employed about fifteen people and the owner Elly McNeil had no accounting background, but

she employed this young Concordia graduate Jonathon Fitzgerald. Jonathon had a Bachelor of

Commerce degree, but lacked practical experience. He has been with Ellys Restaurant since it

was opened. It was Jonathon who set up the system of internal controls remembering from his

university days how important good internal controls could be. Jonathon also looked after all the

accounting, the human resources, the purchase ordering and purchased a computer system for

restaurants. Also under Quebec government law, he had installed the black box at the cash

registers.

Mrs. Elly McNeil met with Mr. Osmond to get a loan of $750,000 for renovations. Also, she

indicated to him that she was looking to open a second restaurant to be located in Laval. She had

a place in mind. Mr. Osmond was very surprised how fast the business was growing an asked

Mrs. McNeil to provide him with audited financial statements for the year ended June 30, 2020.

Mr. Osmond gave Mrs. McNeil your phone number as he felt that he could help your practice

grow and at the same time you could help Mrs. McNeil.

Mrs. McNeil called you on July 5, 2020 and asked to meet with

you for the preparation of the

June 30, 2020 year-end audit. You agreed to meet with her at Ellys Restaurant to discuss the

engagement. You were surprised on what you saw. You knew a little about the restaurant

business as you worked as a waiter while you were going to Concordia. You found out that the

internal controls were non-existent despite the fact that Mrs. McNeil said they were very good.

She did not even sign the cheques. Jonathon prepared and signed the cheques as well as making

the bank deposits. Also, she showed you a letter from the Minister of Revenue indicating that

they were coming in to do a sales tax audit. As far as you saw, the sales tax reports were being

filed on time, but the cheques paid to the Minister were different from the filed reports. You were

also told that there were twelve employees full and part time, but there were only ten payroll

cheques made every two weeks. You asked to see the inventory which was in a frozen freezer

and a normal fridge. It seemed normal, except you noticed in the garbage bin a huge amount of

food being thrown out.

You then went to see Jonathon and asked him for a chart of accounts, the last trial balance that

was prepared (March 31, 2020), an accounts payable listing and the bank reconciliation.

Jonathon mentioned to you that the Restaurant follows ASPE, that he was loaded with work and

has never done or seen any bank reconciliation. You reviewed with Jonathon the internal control

system and evaluated it to be very weak. You still wanted to accept the audit engagement to

please Mr. Osmond and show him what you were capable of doing.

You told Mrs. McNeil that you will accept the audit engagement, send her an engagement letter

and start planning your audit. You also told her that you were going back to the office. When you

returned to the office, you had to interview six undergraduate audit students for the job of your

assistant as well as write the planning memo for the audit of Ellys Restaurant. You decided to

write the planning memo first, outlining the audit engagement to be done at Ellys Restaurant. As

a second engagement, Mrs. McNeil gave you all the documents and correspondence with

Revenue Quebec to discuss with them the Gst-Pst sales tax audit.