Question

In: Accounting

Analyze and draw conclusions about the nature and extent of tests of controls: For each assertion...

  1. Analyze and draw conclusions about the nature and extent of tests of controls:

    1. For each assertion that you identify as high or maximum inherent risk, identify an internal control, or a combination of internal controls, that would control that risk.

    2. Explain the nature and extent of tests of controls you would need to perform to assess control risk as low, for the controls you identified in (c)1 above.

  2. Analyze and draw conclusions about the nature, timing, and extent of substantive procedures:

    1. Given your conclusions about inherent risk and assuming that tests of controls show that internal controls are effective, what are your conclusions about detection risk for the assertions identified as high or maximum inherent risk? Explain your conclusions.

    2. For the assertions you identified as high or maximum inherent risk, what is the substantive procedure you would suggest performing (nature of the test)? Explain your conclusions.

    3. For the assertions you identified as high or maximum inherent risk, when do you suggest performing the substantive procedure (timing of the test)? Explain your conclusions.

    4. For the assertions you identified as high or maximum inherent risk, how extensively should the auditor test these assertions (extent of the test)? Explain your conclusions.

Cloud 9 Consolidated Statement of Income
For the year ended
January 31, 2022
For the year ended
January 31, 2021
Revenues

$364,953,846

$345,965,385

Costs and expenses:
    Cost of sales

$222,496,154

$207,838,462

    Selling and administrative

104,450,000

100,246,154

    Interest expense

1,257,692

1,730,769

    Other (income)/expense, net

1,311,539

  796,154

Total costs and expenses

 329,515,385

 310,611,539

Income before income taxes

35,438,461

35,353,846

Income taxes

  12,757,692

  13,080,769

Net income

$ 22,680,769

$ 22,273,077

Cloud 9 Consolidated Balance Sheet
January 31, 2022 January 31, 2021
Assets
Current assets:
Cash and cash equivalents

$11,692,308

$9,780,769

Accounts receivable, less allowance for doubtful accounts of $2,773,077 and $2,515,385

62,361,538

60,361,539

Inventory

54,773,077

55,615,385

Investments (derivatives)

14,460,577

14,852,885

Deferred income taxes

3,357,692

3,288,461

Prepaid expenses and other current assets

5,250,000

7,276,923

Total current assets

$151,895,192

$151,175,962

Property, plant, and equipment, net

62,261,539

60,900,000

Identifiable intangible assets and goodwill, net

3,820,192

3,950,961

Deferred income taxes and other assets

5,853,846

9,238,462

Total assets

$223,830,769

$225,265,385

Liabilities and Stockholders' Equity
Current liabilties:
Current portion of long-term debt

$207,692

$1,926,923

Notes payable

28,896,154

35,546,154

Accounts payable

20,615,385

20,915,385

Accrued liabilities

18,157,692

23,336,581

Income taxes payable

842,308

582,650

Total current liabilities

$ 68,719,231

$ 82,307,693

Long-term debt

16,765,384

18,088,462

Deferred income taxes and other liabilities

3,942,308

4,253,846

Stockholders' equity:
Common stock at par value

107,692

107,692

Capital in excess of par value

17,669,231

14,192,308

Unearned stock compensation

(380,769)

(450,000)

Accumulated other comprehensive income

(5,850,000)

(4,273,077)

Retaining earnings

122,857,692

111,038,461

Total stockholders' equity

134,403,846

120,615,384

Total liabilties and stockholders' equity

$223,830,769

$225,265,385

Cloud 9 Condensed Cash Flow Statement
For the year ended
January 31, 2022 January 31, 2021
Cash provided by operations

$25,250,000

$26,907,692

Cash used by investing activities

(13,165,385)

(16,923,077)

Cash used by financing activities *

(13,457,692)

(9,696,154)

Effect of exchange rate changes on cash

3,284,616

1,873,077

Net increase in cash and cash equivalents

1,911,539

2,161,538

Cash and cash equivalents, beginning of year

9,780,769

7,619,231

Cash and cash equivalents, end of year

$11,692,308

$9,780,769

*Includes dividends paid of $4,988,462 in 2022 and $5,119,231 in 2021.

Cloud 9 Trial Balance
October 31, 2022 October 31, 2021
Debit Credit Debit Credit
Cash and cash equivalents

$13,446,154

$6,123,884

Accounts receivable

70,485,625

64,867,910

Allowance for doubtful accounts

$704,856

$648,679

Inventory

55,100,000

57,900,000

Investments (derivatives)

13,419,231

13,805,769

Deferred income taxes (current)

2,857,692

3,584,615

Prepaid expenses and other current assets

9,265,385

6,446,154

Property, plant, and equipment

103,803,846

97,576,923

Accumulated depreciation

39,761,538

35,207,692

Identifiable intangible assets and goodwill

3,723,007

3,851,923

Accumulated amortization
Deferred income taxes and other assets (noncurrent)

9,557,692

8,410,849

Current portion of long-term debt

2,115,385

300,125

Notes payable

21,376,923

34,823,077

Accounts payable

14,986,457

22,561,538

Accured liabilities

25,803,846

24,150,000

Income taxes payable

2,211,539

3,726,923

Long-term debt

23,661,538

17,119,106

Deferred income taxes and other liabilities (noncurrent)

4,915,384

4,330,769

Common stock at par value

111,538

107,692

Capital stock in excess of par value

19,415,385

16,484,615

Unearned stock compensation

253,846

480,769

Accumulated other comprehensive income

5,011,538

4,746,154

Beginning retained earnings

122,857,692

98,150,473

Dividends

3,866,838

3,299,423

Repurchases of common stock

4,627,381

2,939,393

Revenue

277,338,461

269,442,308

Cost of sales

169,346,154

163,003,846

Selling and administrative

79,092,308

78,246,154

Interest expense

1,438,461

1,773,077

Other expense

453,846

757,692

Income tax expense

9,511,538

9,238,462

Totals

$555,260,542

$555,260,542

$527,052,997

$527,052,997

Solutions

Expert Solution

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