In: Accounting
Analyze and draw conclusions about the nature and extent of tests of controls:
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.
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.
Analyze and draw conclusions about the nature, timing, and extent of substantive procedures:
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.
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.
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.
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 |
Refer to the below images for the above mentioned questions in a detailed way of explanation.