In 2018, the Westgate Construction Company entered into a contract to construct a road for Santa Clara County for $10,000,000. The road was completed in 2020. Information related to the contract is as follows:

Westgate recognizes revenue over time according to percentage of completion.

Required:
1. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years.
2-a. In the journal below, complete the necessary journal entries for the year 2018 (credit "Various accounts" for construction costs incurred).
2-b. In the journal below, complete the necessary journal entries for the year 2019 (credit "Various accounts" for construction costs incurred).
2-c. In the journal below, complete the necessary journal entries for the year 2020 (credit "Various accounts" for construction costs incurred).
3. Complete the information required below to prepare a partial balance sheet for 2018 and 2019 showing any items related to the contract.
4. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years assuming the following costs incurred and costs to complete information.

5. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years assuming the following costs incurred and costs to complete information.

In 2018, the Westgate Construction Company entered into a contract to construct a road for Santa Clara County for $10,000,000. The road was completed in 2020. Information related to the contract is as follows: 2018 2019 2020 Cost incurred during the year $ 2,604,000 $ 4,032,000 $ 1,940,400 Estimated costs to complete as of year-end 5,796,000 1,764,000 0 Billings during the year 2,040,000 4,596,000 3,364,000 Cash collections during the year 1,820,000 4,000,000 4,180,000 Westgate recognizes revenue over time according to percentage of completion. Required: 1. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years. 2-a. In the journal below, complete the necessary journal entries for the year 2018 (credit "Various accounts" for construction costs incurred). 2-b. In the journal below, complete the necessary journal entries for the year 2019 (credit "Various accounts" for construction costs incurred). 2-c. In the journal below, complete the necessary journal entries for the year 2020 (credit "Various accounts" for construction costs incurred). 3. Complete the information required below to prepare a partial balance sheet for 2018 and 2019 showing any items related to the contract. 4. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years assuming the following costs incurred and costs to complete information. 2018 2019 2020 Cost incurred during the year $ 2,604,000 $ 3,820,000 $ 3,220,000 Estimated costs to complete as of year-end 5,796,000 3,120,000 0 5. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years assuming the following costs incurred and costs to complete information. 2018 2019 2020 Cost incurred during the year $ 2,604,000 $ 3,820,000 $ 3,960,000 Estimated costs to complete as of year-end 5,796,000 4,140,000 0

At a meeting of the board of directors of Barby Limited it was decided :

1. To redeem the redeemable preference shares of the company on 30 September 2006.

2. To achieve this by a fresh issue of the maximum number of ordinary shares of permissible without the necessity of calling a meeting of shareholders.

3. That the issue price for the proposed issue would be R1, 20 per share

4. That the redemption should be made in such a way that would have the minimum effect on distributable reserves.

5. That after the redemption and the issue have been made, a proposal be put to the shareholders in a general meeting that increased the authorized share capital by an amount sufficient to allow capitalisation issue of one ordinary share for every two ordinary shares already held. This is also to be arranged so that there is a minimum effect on distributable reserves.

The following information has been extracted from the accounting records of Barby Limited at 31 August 2006

80 000 ordinary shares of no par value - stated capital R72 500

25 000 12% redeemable preference shares of R2 each 50 000

Share premium account 2 500

Surplus on revaluation of land 50 000

Retained earnings 65 000

Notes

1. The redeemable preference shares are redeemable at a premium of 20c per share at any time at the option of the company.

2. The authorized share capital of the company is: • 100 000 ordinary shares of no par value; and • 25 000 redeemable preference shares of R2 each.

3. The directors have the power to issue unissued shares.

4. The company has sufficient cash, together with the proceeds of the fresh issue, to make any payments which may be required.

5. The company earned a net income after taxation of R5 000 for the month of September 2006.

6. Expenses related to the share issue amount to R1 000.

7. The year end of the company is 31 March.

Required

(a) Record the journal entries required to give effect to the redemption and the fresh issue of shares on 30 September 2006, in accordance with the directors' decisions in point 1 to 4.

(b) Prepare the 'Capital Employed section of the balance sheet, as it would appear immediately after the redemption and fresh issue. Presentation must comply with requirements of the Companies Act. Show all working separately.

(c) Illustrate by means of a pro forma journal entry the effect of the directors' decision (point 5), if it should be confirmed by the shareholders.

(d) Give one good reason for the elaborate provision made by the Companies Act regulating the procedure for the redemption of redeemable preference shares.

Risk Assessment- Exercise #2 Social Konnections Inc. (SKI or the “Company”) is a global Internet company that runs Social Konnections, a large social media networking Web site. SKI has experienced steep growth since its launch in 2005, and the Company went public in 2007. SKI currently has over 500 million active users who visit the site to connect with others, express themselves, and play games. Last year, substantially all of SKI’s revenue came from advertisers who market their products and services to SKI’s active users through advertisements placed on the Web site or its various mobile platforms. The founder of the company serves as the CEO and is also on the chairman of the board of directors. The CFO is also one of the co-founders of the company. Both have been serving in these roles since 2005. In Q1 of the current fiscal year, SKI acquired Corporate Collaborations (CC), an entity that manages private and public social media networks for corporations. CC’s customers are primarily national and global companies whose employees connect over its platform. In addition to hosting private social media networks for corporations, CC provides services to develop the networks it manages. CC’s revenues are earned through the performance of multiyear revenue contracts with its customers. In the current year, CC is expected to produce approximately 20 percent of SKI’s consolidated revenue. SKI’s investors are focused on the growth prospects of the Company’s legacy open social media platform operations and its new corporate revenue unit. The Company’s MD&A disclosures include (1) various user and revenue metrics to help financial statement users assess its traditional operations and (2) backlog information to help users assess CC’s operations. Advertising Revenue SKI creates advertising space on its Web site and mobile applications and sells the space to advertisers either directly, or through advertising agencies. According to Mr. Cook, the amount an advertiser pays is dependent on the number of views the ad receives or the number of user clicks (depending on the type of advertisement defined in the underlying contract) and the revenue is recorded in the period in which the views or clicks are made. Ms. Drew has learned that simple advertising can be purchased directly from SKI through SKI’s advertising Web site at standard rates, with the advertisements and terms input directly into the Company’s ad delivery platform. However, most advertising revenue is generated directly through the advertising sales team, which has the ability to help advertisers develop more sophisticated advertising campaigns. Management has established minimum pricing and volume thresholds for these advertisements; however, the sales staff is given significant latitude in securing contracts with customers. Extra commissions are paid to sales individuals who sign longer-term contracts that meet minimum revenue targets. Once a contract is signed, the ad development department creates the ad content and obtains the customer’s approval. The approved ad and the contract are electronically sent to the ad scheduling department, and the advertisement is uploaded into the Company’s ad delivery platform. The ad delivery platform is a robust system and is designed to capture all the nuances associated with the contract. For example, an advertiser may wish to have its ads displayed only to users whose IP addresses are from a specific geographic location, or the contract may be structured to provide the advertiser with variable pricing or incentives (such as a set of free advertisements) once a certain level has been paid for. In summary, the delivery platform captures all the relevant pricing information associated with the contract to allow for real-time revenue recognition according to the terms of the contract. After the contract is entered into the system, a summary of the contract setup is provided to the sales manager that worked with the customer. The sales manager then reviews the contract setup for accuracy. The Company’s ad delivery platform automatically tracks the advertising activity each day and reports the activity to its customers, who are then billed weekly for the aggregate ad activity. Ms. Drew’s Concern Ms. Drew is concerned about several things she has learned regarding the appropriateness of management’s revenue recognition policies. Financial Statements Balance Sheet: Account Prior year (1 year ago)** Two years ago Assets* $100m $80m Liabilities $40m $30m Equity $60m $50m Revenue $30m $18 Expenses $22m $19 Net Income $8m ($1m) loss *Assets consist primarily of cash, land/building, patents, goodwill, and other assets. ** As you plan your audit this is the latest financial information available. Controls The Company’s has various controls in place. The CFO performs a checklist on a monthly basis to review the performance of the company. The CFO reports to the CEO every quarter. The CEO reports to the chairman of the board of directors once a year before the financial statements are prepared and released to the public. The company has over 10 thousand employees around the world, of which 4 thousand work at the headquarters. All employees receive the company’s code of ethics that was prepared in 2005 when the company was founded. The CEO was in recent trouble when he posted controversial messages on the social platform that offended people of a certain group. The company has One hundred different controls across the company and across the world related to operations of the company and revenue. The company uses 10 different IT systems as the company is growing quickly it has had to adopt and adds new systems whenever they are needed. The leaders of one of the main divisions recently left to go work for Facebook, and has not been replaced for the last 4 months. Controls have changed a lot since last year because the company is so dynamic and the environment is so fast paced. Employees are always trying to keep up with the new systems and new controls. Audit Because of SKI’s continued growth, the audit committee has requested that the Company choose a new audit firm with experience in auditing public technology companies. Kristine Drew, a senior auditor, is the in-charge accountant on the proposal and planning of the SKI audit. In addition to her supervisory and administrative responsibilities, Ms. Drew is responsible for auditing revenue and determining the risk assessment for the audit. Ms. Drew has read the Company’s disclosed accounting policies and is interviewing the revenue controller, Bill Cook, and various sales personnel to develop in-depth process flow documentation that will serve as the basis for the team’s risk assessment. Required: 1. What would you set Audit risk, Control Risk, Inherent Risk, and Detection risk? (Very low, low, medium, or high) 2. Are there are significant or fraud risks that you have identified? (If any why are they fraud or significant risks?) 3. What other information do you need to plan your audit approach? Where would you get this information from? For each piece of information indicate where you might receive it from and how? (ex: who else is on the board of directors- obtained through inquiry.) 4. What benchmark would you use to calculate materiality? Why? (ex: revenue, EBITDA, Equity, Assets, etc) 5. Using the benchmark and guidance in the book calculate “overall materiality” for your audit? (ex: 8% of Equity ($60m)= $2.4m). 6. For Revenue what assertions are the most important for you to test? 7. For Revenue what are your concerns with each of those assertions based on the information above? 8. What are the things about testing revenue that you are concerned about (specifically what parts of the company’s process if any concern you)? (Example: An employee could steal money from the bank account, or revenue could be modified in the accounting software by an employee.) (Focus on the actual real process for the company described above to make this determination.) 9. For your audit approach would you choose to test controls or primarily perform substantive procedures? If so what would be your mix of control testing to substantive testing? (ex: 50% controls, and 50% substantive) 10. Would you accept this audit? If not why not?

Risk Assessment- Exercise #1

Social Konnections Inc. (SKI or the “Company”) is a global Internet company that runs Social Konnections, a large social media networking Web site. SKI has experienced steep growth since its launch in 2005, and the Company went public in 2007. SKI currently has over 500 million active users who visit the site to connect with others, express themselves, and play games.

Last year, substantially all of SKI’s revenue came from advertisers who market their products and services to SKI’s active users through advertisements placed on the Web site or its various mobile platforms.

The founder of the company serves as the CEO and is also on the chairman of the board of directors. The CFO is also one of the co-founders of the company. Both have been serving in these roles since 2005.

In Q1 of the current fiscal year, SKI acquired Corporate Collaborations (CC), an entity that manages private and public social media networks for corporations. CC’s customers are primarily national and global companies whose employees connect over its platform. In addition to hosting private social media networks for corporations, CC provides services to develop the networks it manages. CC’s revenues are earned through the performance of multiyear revenue contracts with its customers. In the current year, CC is expected to produce approximately 20 percent of SKI’s consolidated revenue.

SKI’s investors are focused on the growth prospects of the Company’s legacy open social media platform operations and its new corporate revenue unit. The Company’s MD&A disclosures include (1) various user and revenue metrics to help financial statement users assess its traditional operations and (2) backlog information to help users assess CC’s operations.

Advertising Revenue

SKI creates advertising space on its Web site and mobile applications and sells the space to advertisers either directly, or through advertising agencies. According to Mr. Cook, the

amount an advertiser pays is dependent on the number of views the ad receives or the number of user clicks (depending on the type of advertisement defined in the underlying contract) and the revenue is recorded in the period in which the views or clicks are made.

Ms. Drew has learned that simple advertising can be purchased directly from SKI through SKI’s advertising Web site at standard rates, with the advertisements and terms input directly into the Company’s ad delivery platform. However, most advertising revenue is generated directly through the advertising sales team, which has the ability to help advertisers develop more sophisticated advertising campaigns. Management has established minimum pricing and volume thresholds for these advertisements; however, the sales staff is given significant latitude in securing contracts with customers. Extra commissions are paid to sales individuals who sign longer-term contracts that meet minimum revenue targets.

Once a contract is signed, the ad development department creates the ad content and obtains the customer’s approval. The approved ad and the contract are electronically sent to the ad scheduling department, and the advertisement is uploaded into the Company’s ad delivery platform. The ad delivery platform is a robust system and is designed to capture all the nuances associated with the contract. For example, an advertiser may wish to have its ads displayed only to users whose IP addresses are from a specific geographic location, or the contract may be structured to provide the advertiser with variable pricing or incentives (such as a set of free advertisements) once a certain level has been paid for. In summary, the delivery platform captures all the relevant pricing information associated with the contract to allow for real-time revenue recognition according to the terms of the contract. After the contract is entered into the system, a summary of the contract setup is provided to the sales manager that worked with the customer. The sales manager then reviews the contract setup for accuracy.

The Company’s ad delivery platform automatically tracks the advertising activity each day and reports the activity to its customers, who are then billed weekly for the aggregate ad activity.

Ms. Drew’s Concern

Ms. Drew is concerned about several things she has learned regarding the appropriateness of management’s revenue recognition policies.

Financial Statements

Balance Sheet:

*Assets consist primarily of cash, land/building, patents, goodwill, and other assets.

** As you plan your audit this is the latest financial information available.

Controls

The Company’s has various controls in place. The CFO performs a checklist on a monthly basis to review the performance of the company. The CFO reports to the CEO every quarter. The CEO reports to the chairman of the board of directors once a year before the financial statements are prepared and released to the public.

The company has over 10 thousand employees around the world, of which 4 thousand work at the headquarters. All employees receive the company’s code of ethics that was prepared in 2005 when the company was founded. The CEO was in recent trouble when he posted controversial messages on the social platform that offended people of a certain group. The company has One hundred different controls across the company and across the world related to operations of the company and revenue.

The company uses 10 different IT systems as the company is growing quickly it has had to adopt and adds new systems whenever they are needed.

The leaders of one of the main divisions recently left to go work for Facebook, and has not been replaced for the last 4 months.

Controls have changed a lot since last year because the company is so dynamic and the environment is so fast paced. Employees are always trying to keep up with the new systems and new controls.

Audit

Because of SKI’s continued growth, the audit committee has requested that the Company choose a new audit firm with experience in auditing public technology companies.

Kristine Drew, a senior auditor, is the in-charge accountant on the proposal and planning of the SKI audit. In addition to her supervisory and administrative responsibilities, Ms. Drew is responsible for auditing revenue and determining the risk assessment for the audit.

Ms. Drew has read the Company’s disclosed accounting policies and is interviewing the revenue controller, Bill Cook, and various sales personnel to develop in-depth process flow documentation that will serve as the basis for the team’s risk assessment.

Required:

1. What would you set Audit risk, Control Risk, Inherent Risk, and Detection risk? (Very low, low, medium, or high)
2. Are there are significant or fraud risks that you have identified? (If any why are they fraud or significant risks?)
3. What other information do you need to plan your audit approach? Where would you get this information from? For each piece of information indicate where you might receive it from and how? (ex: who else is on the board of directors- obtained through inquiry.)
4. What benchmark would you use to calculate materiality? Why? (ex: revenue, EBITDA, Equity, Assets, etc)
5. Using the benchmark and guidance in the book calculate “overall materiality” for your audit? (ex: 8% of Equity ($60m)= $2.4m).
6. For Revenue what assertions are the most important for you to test?
7. For Revenue what are your concerns with each of those assertions based on the information above?
8. What are the things about testing revenue that you are concerned about (specifically what parts of the company’s process if any concern you)? (Example: An employee could steal money from the bank account, or revenue could be modified in the accounting software by an employee.) (Focus on the actual real process for the company described above to make this determination.)
9. For your audit approach would you choose to test controls or primarily perform substantive procedures? If so what would be your mix of control testing to substantive testing? (ex: 50% controls, and 50% substantive)
10. Would you accept this audit? If not why not?

Risk Assessment- Exercise #1

Social Konnections Inc. (SKI or the “Company”) is a global Internet company that runs Social Konnections, a large social media networking Web site. SKI has experienced steep growth since its launch in 2005, and the Company went public in 2007. SKI currently has over 500 million active users who visit the site to connect with others, express themselves, and play games.

Last year, substantially all of SKI’s revenue came from advertisers who market their products and services to SKI’s active users through advertisements placed on the Web site or its various mobile platforms.

The founder of the company serves as the CEO and is also on the chairman of the board of directors. The CFO is also one of the co-founders of the company. Both have been serving in these roles since 2005.

In Q1 of the current fiscal year, SKI acquired Corporate Collaborations (CC), an entity that manages private and public social media networks for corporations. CC’s customers are primarily national and global companies whose employees connect over its platform. In addition to hosting private social media networks for corporations, CC provides services to develop the networks it manages. CC’s revenues are earned through the performance of multiyear revenue contracts with its customers. In the current year, CC is expected to produce approximately 20 percent of SKI’s consolidated revenue.

SKI’s investors are focused on the growth prospects of the Company’s legacy open social media platform operations and its new corporate revenue unit. The Company’s MD&A disclosures include (1) various user and revenue metrics to help financial statement users assess its traditional operations and (2) backlog information to help users assess CC’s operations.

Advertising Revenue

SKI creates advertising space on its Web site and mobile applications and sells the space to advertisers either directly, or through advertising agencies. According to Mr. Cook, the

amount an advertiser pays is dependent on the number of views the ad receives or the number of user clicks (depending on the type of advertisement defined in the underlying contract) and the revenue is recorded in the period in which the views or clicks are made.

Ms. Drew has learned that simple advertising can be purchased directly from SKI through SKI’s advertising Web site at standard rates, with the advertisements and terms input directly into the Company’s ad delivery platform. However, most advertising revenue is generated directly through the advertising sales team, which has the ability to help advertisers develop more sophisticated advertising campaigns. Management has established minimum pricing and volume thresholds for these advertisements; however, the sales staff is given significant latitude in securing contracts with customers. Extra commissions are paid to sales individuals who sign longer-term contracts that meet minimum revenue targets.

Once a contract is signed, the ad development department creates the ad content and obtains the customer’s approval. The approved ad and the contract are electronically sent to the ad scheduling department, and the advertisement is uploaded into the Company’s ad delivery platform. The ad delivery platform is a robust system and is designed to capture all the nuances associated with the contract. For example, an advertiser may wish to have its ads displayed only to users whose IP addresses are from a specific geographic location, or the contract may be structured to provide the advertiser with variable pricing or incentives (such as a set of free advertisements) once a certain level has been paid for. In summary, the delivery platform captures all the relevant pricing information associated with the contract to allow for real-time revenue recognition according to the terms of the contract. After the contract is entered into the system, a summary of the contract setup is provided to the sales manager that worked with the customer. The sales manager then reviews the contract setup for accuracy.

The Company’s ad delivery platform automatically tracks the advertising activity each day and reports the activity to its customers, who are then billed weekly for the aggregate ad activity.

Ms. Drew’s Concern

Ms. Drew is concerned about several things she has learned regarding the appropriateness of management’s revenue recognition policies.

Financial Statements

Balance Sheet:

*Assets consist primarily of cash, land/building, patents, goodwill, and other assets.

** As you plan your audit this is the latest financial information available.

Controls

The Company’s has various controls in place. The CFO performs a checklist on a monthly basis to review the performance of the company. The CFO reports to the CEO every quarter. The CEO reports to the chairman of the board of directors once a year before the financial statements are prepared and released to the public.

The company has over 10 thousand employees around the world, of which 4 thousand work at the headquarters. All employees receive the company’s code of ethics that was prepared in 2005 when the company was founded. The CEO was in recent trouble when he posted controversial messages on the social platform that offended people of a certain group. The company has One hundred different controls across the company and across the world related to operations of the company and revenue.

The company uses 10 different IT systems as the company is growing quickly it has had to adopt and adds new systems whenever they are needed.

The leaders of one of the main divisions recently left to go work for Facebook, and has not been replaced for the last 4 months.

Controls have changed a lot since last year because the company is so dynamic and the environment is so fast paced. Employees are always trying to keep up with the new systems and new controls.

Audit

Because of SKI’s continued growth, the audit committee has requested that the Company choose a new audit firm with experience in auditing public technology companies.

Kristine Drew, a senior auditor, is the in-charge accountant on the proposal and planning of the SKI audit. In addition to her supervisory and administrative responsibilities, Ms. Drew is responsible for auditing revenue and determining the risk assessment for the audit.

Ms. Drew has read the Company’s disclosed accounting policies and is interviewing the revenue controller, Bill Cook, and various sales personnel to develop in-depth process flow documentation that will serve as the basis for the team’s risk assessment.

Required:

1. What would you set Audit risk, Control Risk, Inherent Risk, and Detection risk? (Very low, low, medium, or high)
2. Are there are significant or fraud risks that you have identified? (If any why are they fraud or significant risks?)
3. What other information do you need to plan your audit approach? Where would you get this information from? For each piece of information indicate where you might receive it from and how? (ex: who else is on the board of directors- obtained through inquiry.)
4. What benchmark would you use to calculate materiality? Why? (ex: revenue, EBITDA, Equity, Assets, etc)
5. Using the benchmark and guidance in the book calculate “overall materiality” for your audit? (ex: 8% of Equity ($60m)= $2.4m).
6. For Revenue what assertions are the most important for you to test?
7. For Revenue what are your concerns with each of those assertions based on the information above?
8. What are the things about testing revenue that you are concerned about (specifically what parts of the company’s process if any concern you)? (Example: An employee could steal money from the bank account, or revenue could be modified in the accounting software by an employee.) (Focus on the actual real process for the company described above to make this determination.)
9. For your audit approach would you choose to test controls or primarily perform substantive procedures? If so what would be your mix of control testing to substantive testing? (ex: 50% controls, and 50% substantive)
10. Would you accept this audit? If not why not?

Risk Assessment- Exercise #1

Social Konnections Inc. (SKI or the “Company”) is a global Internet company that runs Social Konnections, a large social media networking Web site. SKI has experienced steep growth since its launch in 2005, and the Company went public in 2007. SKI currently has over 500 million active users who visit the site to connect with others, express themselves, and play games.

Last year, substantially all of SKI’s revenue came from advertisers who market their products and services to SKI’s active users through advertisements placed on the Web site or its various mobile platforms.

The founder of the company serves as the CEO and is also on the chairman of the board of directors. The CFO is also one of the co-founders of the company. Both have been serving in these roles since 2005.

In Q1 of the current fiscal year, SKI acquired Corporate Collaborations (CC), an entity that manages private and public social media networks for corporations. CC’s customers are primarily national and global companies whose employees connect over its platform. In addition to hosting private social media networks for corporations, CC provides services to develop the networks it manages. CC’s revenues are earned through the performance of multiyear revenue contracts with its customers. In the current year, CC is expected to produce approximately 20 percent of SKI’s consolidated revenue.

SKI’s investors are focused on the growth prospects of the Company’s legacy open social media platform operations and its new corporate revenue unit. The Company’s MD&A disclosures include (1) various user and revenue metrics to help financial statement users assess its traditional operations and (2) backlog information to help users assess CC’s operations.

Advertising Revenue

SKI creates advertising space on its Web site and mobile applications and sells the space to advertisers either directly, or through advertising agencies. According to Mr. Cook, the

amount an advertiser pays is dependent on the number of views the ad receives or the number of user clicks (depending on the type of advertisement defined in the underlying contract) and the revenue is recorded in the period in which the views or clicks are made.

Ms. Drew has learned that simple advertising can be purchased directly from SKI through SKI’s advertising Web site at standard rates, with the advertisements and terms input directly into the Company’s ad delivery platform. However, most advertising revenue is generated directly through the advertising sales team, which has the ability to help advertisers develop more sophisticated advertising campaigns. Management has established minimum pricing and volume thresholds for these advertisements; however, the sales staff is given significant latitude in securing contracts with customers. Extra commissions are paid to sales individuals who sign longer-term contracts that meet minimum revenue targets.

Once a contract is signed, the ad development department creates the ad content and obtains the customer’s approval. The approved ad and the contract are electronically sent to the ad scheduling department, and the advertisement is uploaded into the Company’s ad delivery platform. The ad delivery platform is a robust system and is designed to capture all the nuances associated with the contract. For example, an advertiser may wish to have its ads displayed only to users whose IP addresses are from a specific geographic location, or the contract may be structured to provide the advertiser with variable pricing or incentives (such as a set of free advertisements) once a certain level has been paid for. In summary, the delivery platform captures all the relevant pricing information associated with the contract to allow for real-time revenue recognition according to the terms of the contract. After the contract is entered into the system, a summary of the contract setup is provided to the sales manager that worked with the customer. The sales manager then reviews the contract setup for accuracy.

The Company’s ad delivery platform automatically tracks the advertising activity each day and reports the activity to its customers, who are then billed weekly for the aggregate ad activity.

Ms. Drew’s Concern

Ms. Drew is concerned about several things she has learned regarding the appropriateness of management’s revenue recognition policies.

Financial Statements

Balance Sheet:

*Assets consist primarily of cash, land/building, patents, goodwill, and other assets.

** As you plan your audit this is the latest financial information available.

Controls

The Company’s has various controls in place. The CFO performs a checklist on a monthly basis to review the performance of the company. The CFO reports to the CEO every quarter. The CEO reports to the chairman of the board of directors once a year before the financial statements are prepared and released to the public.

The company has over 10 thousand employees around the world, of which 4 thousand work at the headquarters. All employees receive the company’s code of ethics that was prepared in 2005 when the company was founded. The CEO was in recent trouble when he posted controversial messages on the social platform that offended people of a certain group. The company has One hundred different controls across the company and across the world related to operations of the company and revenue.

The company uses 10 different IT systems as the company is growing quickly it has had to adopt and adds new systems whenever they are needed.

The leaders of one of the main divisions recently left to go work for Facebook, and has not been replaced for the last 4 months.

Controls have changed a lot since last year because the company is so dynamic and the environment is so fast paced. Employees are always trying to keep up with the new systems and new controls.

Audit

Because of SKI’s continued growth, the audit committee has requested that the Company choose a new audit firm with experience in auditing public technology companies.

Kristine Drew, a senior auditor, is the in-charge accountant on the proposal and planning of the SKI audit. In addition to her supervisory and administrative responsibilities, Ms. Drew is responsible for auditing revenue and determining the risk assessment for the audit.

Ms. Drew has read the Company’s disclosed accounting policies and is interviewing the revenue controller, Bill Cook, and various sales personnel to develop in-depth process flow documentation that will serve as the basis for the team’s risk assessment.

Required:

1. What would you set Audit risk, Control Risk, Inherent Risk, and Detection risk? (Very low, low, medium, or high)
2. Are there are significant or fraud risks that you have identified? (If any why are they fraud or significant risks?)
3. What other information do you need to plan your audit approach? Where would you get this information from? For each piece of information indicate where you might receive it from and how? (ex: who else is on the board of directors- obtained through inquiry.)
4. What benchmark would you use to calculate materiality? Why? (ex: revenue, EBITDA, Equity, Assets, etc)
5. Using the benchmark and guidance in the book calculate “overall materiality” for your audit? (ex: 8% of Equity ($60m)= $2.4m).
6. For Revenue what assertions are the most important for you to test?
7. For Revenue what are your concerns with each of those assertions based on the information above?
8. What are the things about testing revenue that you are concerned about (specifically what parts of the company’s process if any concern you)? (Example: An employee could steal money from the bank account, or revenue could be modified in the accounting software by an employee.) (Focus on the actual real process for the company described above to make this determination.)
9. For your audit approach would you choose to test controls or primarily perform substantive procedures? If so what would be your mix of control testing to substantive testing? (ex: 50% controls, and 50% substantive)
10. Would you accept this audit? If not why not?

Case Study

• PF Corporation makes three different clothing fasteners in its manufacturing facility in North Carolina. Data concerning these products appear below:

• All the three products are sold in highly competitive markets, so the company is unable to raise its prices without losing unacceptable numbers of customers. Fixed Expenses for V, M and N are $20,000, $80,000 and $60,000 respectively.
• The company has an extremely effective lean production system, so there are no beginning or ending work in process or finished goods inventories. Make necessary assumptions, wherever necessary.

Required:

1. What is the company’s break-even point in dollar sales?
2. Compute the break-even point for each product using contribution margin approach.
3. Critically analyze all the three products and suggest which product should be removed from the market with valid justifications.
4. Discuss the usefulness of Break-Even Analysis to various stakeholders such as customers, marketing departments and finance department of an organization.
5. Critically evaluate the limitations of Break-Even Analysis

Your objective is to write a well-documented simple program using classes, a loop, and nested ifs to simulate an ATM using JAVA.

1. Create an ATM class with class variables name, pin, and balance, a constructor with parameters to assign values to the three instance variables, methods to get the name, pin, and balance, and methods to handle validated deposits and withdrawals ( deposit and withdrawal amounts cannot be negative, and withdrawal amount must not be greater than the existing balance).

2. In the ATMTest class, read the names, 4 digit pin numbers, and account balances of two customers into two instances of the ATM class. Display the two customers names, pins, and balances formatted.

3. Now that you have all your customers’ information start your ATM to accomplish the following within an infinite loop,

a). Display a welcome screen with your bank’s information and prompt for and read the customer entered pin.

b). Use a nested if to match the entered pin with one of the two customers’ pins. If the entered pin number matches that of one of the customers, then:

i. Welcome the customer by name and display the balance.

ii. Display option to 1. DEPOSIT, 2. WITHDRAW or 3. EXIT.

iii. If option 1 is selected, then use the instance deposit method to prompt for deposit amount, read, and add a valid deposit amount to the customer’s balance

iv. If option 2 is selected, then use the instance withdrawal method to subtract a valid withdrawal amount from the customers balance

v. If option 3 is selected, go to step a.

4. Should the entered pin number not match either of the two customers, notify the customer that the entered pin is not valid and go to step a.

5. Selection of the EXIT option must display welcome/login screen (step a).

6. Should an incorrect option be entered, notify the user and display the original welcome/login screen (step a).

How to create customers' accounts in Sage 50 and make entries in there? Create five customers with distinctive names to identify later in your created company and enter four transactions of credit sales in their individual accounts and write down the steps.