Module Two - CA School of Business

Module Two
STUDENT OVERVIEW
2013
INTRODUCTION
This overview introduces the content and unique challenges in Module 2.
For information about CASB administrative policies and advice for a successful experience as a CASB
student, see the “Student Resource Guide,” which is available on the Module 2 course site and also on the
CASB web site.
Unique Challenges in Module 2
The storyboard for Module 2 is shown on the next page. Tasks are less directed than in Module 1, and
students will address more tasks that are integrated with other tasks. Work performed in a previous week
often carries forward to following weeks. Also, Module 2 has higher expectations for the quality of
communication and recognition of users’ needs. Students are expected to arrive at conclusions after
thorough analyses and provide users with well-supported recommendations.
The main case study for weekly tasks continues to be Vision Windows Limited. During Module 2, a variety of
tasks including a business valuation and wind-up are performed based on the sale of Vision. Students will
also plan and execute a financial statement audit of Western Home Centres, a company that Vision is
looking to acquire. At the end of Module 2, students will prepare acquisition-date consolidated financial
statements, assuming 100% of the shares are purchased.
See pages 3-4 for the module storyboard and page 5 for a summary of the major roles students will play.
Pages 6-9 list the weekly recommended resources, and Page 10 summarizes the evolution of Vision
Windows Limited across CASB’s five modules.
Copyright 2013 – CA School of Business
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Not to be released without expressed written consent
Student Overview
Page 2 of 10
2013
MODULE 2 STORYBOARD –2013
Week 1
Week 2
 Self-Review TaskIdentify business
valuation approaches
that would be
appropriate in various
circumstances. Finance
 Sale of an
Incorporated BusinessSale of assetscalculate the net cash
available to redeem
shares. Finance,
Taxation
 Calculate the value of
the business using the
capitalized cash flow
approach and the
adjusted net asset
value approach
(Reasonableness Test).
Finance
 Explain the qualitative
factors in deciding
whether or not to sell
the business. Finance
 Explain the general tax
implications of an offer
to purchase shares
versus assets. Taxation
 Explain how the
disposal of QSBC
shares will qualify for
CGE treatment.
Taxation
 Sale of an
Incorporated BusinessSale of assetscalculate the after tax
net cash available to
the shareholder
Finance, Taxation
 Sale of an
Incorporated BusinessSale of sharescalculate the net cash
available to the
shareholder. Finance,
Taxation
 Sale of an
Incorporated BusinessPresent a
recommendation on
sale of shares vs.
assets that considers
both quantitative and
qualitative factors.
Finance, Taxation,
Pervasive (Critical
Thinking)
Week 3
 Perform materiality
assessment on four
levels. Assurance
 Analyze financial
statements and
identify audit planning
issues. Assurance
 Assess overall
financial statement
level risk and specific
account level risks for
inventory. Assurance
 Assess fraud risk
factors at the overall
financial statement
and assertion levels
Assurance
Week 4
 Relate specific
assertions to
procedures for the
audit of AR. Assurance
 Complete control risk
analysis for Sales,
Receivables, Receipts
cycle and recommend
audit approach for
each assertion,
considering inherent
risks. Assurance
 Explain the
requirement to control
AR confirmations, the
differences between
positive and negative
confirmations, control
risk assessments at the
assertion level, and the
effects of test of
controls. Assurance
 Complete AR
confirmation
spreadsheet and
identify alternative
verification
procedures. Calculate
the likely misstatement
of AR confirmation
errors in a
representative sample,
and prepare the
AJE(s). Assurance
 Suggest useful CAAT
inquiry reports to
assist in AR audit.
Assurance
 Install Securexam and
complete the
qualification exam.
Copyright 2013 – CA School of Business
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Student Overview
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2013
Week 5
Week 6
 Complete the control
and inherent risk
analyses for the
Purchases, Payables
and Disbursement cycle
and recommend an
audit approach for each
assertion. Assurance
 Identify concerns and
explain specific audit
procedures for the
bank reconciliation.
Assurance
 Evaluate high value
inventory
misstatements;
calculate the likely
misstatement due to
inventory pricing errors
in a representative
sample, and prepare
the AJE(s). Assurance
 Explain audit
procedures to test the
existence and
completeness of
inventory. Explain audit
procedures to test the
existence and
completeness of
Properly, Plant, &
Equipment, as well as
Valuation and
Allocation through
impairment. Assurance
 Analyze issues arising
from a deficient
inventory count.
Discuss implications of
counting inventory
before year end.
Assurance, Pervasive
(Critical Thinking)
 Explain the various
audit procedures
related to accounts
payable and accrued
liabilities- statement
reconciliations,
confirmations,
subsequent payment
review and analytical
procedures. Assurance
 Address audit and
accounting issues for
Property, Plant, and
Equipment. Assurance,
PM
 Address audit and
accounting issues for
Leases. Assurance, PM
 Design audit
procedures to address
subsequent events,
and address specific
accounting issues.
Assurance, PM
Week 7
 Self-Review TaskIdentify the
circumstances where
an audit report
modification may be
necessary. Assurance
 Discuss the appropriate
audit opinion for
Western, as well as any
specific modifications.
Assurance
 Explain criteria for
Canadian tax residency.
Taxation
 Explain the tax
consequences of
emigration. Calculate
principal residence
exemption. Discuss
general issues related
to the taxation of nonresidents. Taxation
 Prepare a consolidated
balance sheet for
Vision as at the date of
acquisition of Western.
PM
 Complete a Securexam
practice exam.
 Identify follow up audit
procedures for the
legal enquiry letter.
Assurance, PM
Note: Communication competence is required for most tasks, so communication is not listed separately.
Copyright 2013 – CA School of Business
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Not to be released without expressed written consent
Student Overview
Page 4 of 10
2013
ROLES
Students will play several roles during Module 2:
Associate for Bablitz & Yip (Financial & Special Services Group)
Students typically work in the accounting and auditing department, but for two weeks the student has been
seconded to the financial and special services group. This assignment changes the perspective for
addressing issues. For example, students will focus on how a business is valued, not how it would be
audited. The tone and language of a business valuator would be “big picture” focused, and analyses would
concentrate on both quantitative and qualitative factors. Communications will focus on giving the client
information that is useful for decision making.
Associate for Parkhurst & Loewen
As a staff accountant, the student’s role is to interact with both the audit firm supervisors, subordinates, and
the client. The student will gradually learn more about the client, and the supervisor will ask the student to
perform audit work. The student will research various topics and discuss them with the client in a manner
which recognizes the client is a sophisticated business person but is not an accountant. If the student
believes there is room for a conclusion or recommendation, this should be presented along with proper
support. Although the associate’s work will be reviewed prior to presentation to the client, the student
should attempt to make the work as complete as possible.
Controller
In the controller role, the student will be responsible for the day-to-day operations and decisions of the
organization, plus participate in long-term decisions such as investments. The controller is concerned with
running the company and with contributing to the profitability and growth of the company. Decisions would
focus on the big picture and concentrate on items that will bring in the most benefit/reward to the
company. Communication should be professional and technically correct, and provide sufficient detail to
demonstrate thorough research and analysis leading to well-supported conclusions.
Copyright 2013 – CA School of Business
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Not to be released without expressed written consent
Student Overview
Page 5 of 10
2013
USEFUL RESOURCES AND READINGS
Below is a list of recommended resources for each week. In addition, many tasks require students to
conduct research to identify relevant information.
Week
Resource
Business Valuation Guide
Sale of a Business Guide
1
Sale of Business in the Canadian Business Compliance Manual
Canadian Tax Principles- Lifetime Capital Gains Deduction and Other Rollovers and Sale of an
Incorporated Business
Business Valuation Guide
2
Guide on Sale of a Business
Canadian Tax Principles- Lifetime Capital Gains Deduction and Other Rollovers and Sale of an
Incorporated Business
CAS 200 – Overall objective of the Independent Auditor, and the Conduct of an Audit in
Accordance with Canadian Auditing Standards
CAS 230 – Audit Documentation
CAS 240 – The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements
CAS 265 - Communicating Deficiencies in Internal Control to those Charged with Governance
and Management
CAS 300 – Planning an Audit of Financial Statements
CAS 315 – Identifying and Assessing the Risks of Material Misstatement Through Understanding
the Entity and its Environment
3
CAS 320 – Materiality in planning and performing an audit
CAS 330 – The Auditor’s Responses to Assessed Risks
Sample Audit Planning Memo – Central Computing Inc.
CAS Guide – CAS 200, CAS 230, CAS 240, CAS 265, CAS 300, CAS 315, CAS 320, CAS 330
CPEM: Core Concepts – Materiality and Audit Risk
CPEM: Audit Engagements Phase 1 – Determining Materiality
CPEM: Core Concepts: Audit Engagements Risk Assessment Procedures
CPEM: Practice Aids – Sample Engagement Forms – 524 Analytical Procedures
CPEM: Core Concepts – Appendices A – A Primer on Fraud
4
CAS 315 – Identifying and Assessing the Risks of Material Misstatement through Understanding
the Entity and its Environment
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Not to be released without expressed written consent
Student Overview
Page 6 of 10
2013
Week
Resource
CAS 330 – The Auditor’s Responses to Assessed Risks
CAS 500 - Audit Evidence
CAS 505 – External Confirmations
CAS Guide – CAS 315, CAS 500, CAS 505, CAS 330
CPEM: Core Concepts - Audit Engagements – Financial Statement Assertions
CPEM: Core Concepts - Audit Engagements - Risk Assessment Procedures
CPEM: Core Concepts - Audit Engagements - Responding to Assessed Risks
CPEM: Core Concepts – Further Audit Procedures - External Confirmations
CPEM: Practical Guidance - Audit Engagements Phase II - Risk Response - The Responsive
Audit Plan - Determining the Appropriate Mix of Procedures
CPEM: Practice aids - Sample Engagement Forms and Worksheets
CPEM: Practice aids – Other Guidance Assurance - Confirmation Procedures
CPEM: Checklist C.100
CAARS - Confirmation of Accounts Receivable
CAARS - Application of Computer - Assisted Audit Techniques
Sample audit planning memo – Central Computing Inc.
Sampling and Misstatement Extrapolation Guide
HB 3063 – Impairment of Long Lived Assets
CAS 315 – Identifying and Assessing the Risks of Material Misstatement through Understanding
the Entity and its Environment
CAS 500 - Audit Evidence
CAS 501 - Audit Evidence—Specific Considerations for Selected Items
CAS Guide – CAS 315, CAS 500, CAS 501
5
CPEM: Practice Aids – Sample Engagement Forms and Worksheets
CPEM: Core Concepts – Audit Engagements - Risk Assessment Procedures
CPEM: Core Concepts – Audit Engagements - Responding to Assessed Risks
CPEM: Audit Engagements Phase II – Risk Response - The Responsive Audit Plan
CPEM: Practice aids – Sample Engagement Forms and Worksheets, 550 Control
Design/Implementation – Purchases, Payables, Payments
CPEM: Inventory - Audit Procedures (Form D.100 - step 10)
CPEM: Practice Aids - U.100 Property, Plant and Equipment work program
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Not to be released without expressed written consent
Student Overview
Page 7 of 10
2013
Week
Resource
CPEM: Other Guidance Assurance, Chapter 26, Statistical Sampling
CPEM: Other Guidance Assurance, Chapter 27, Inventory Observations
CPEM: Practice Aids, Audit Plans & Procedures
Sampling and Misstatement Extrapolation Guide
HB 1000 – Financial Statement Concepts
HB 3061 – Property, Plant and Equipment
HB 3064 – Goodwill and Intangible Assets
HB 3065 – Leases
HB 3290 - Contingencies
HB 3820 – Subsequent Events
ASPE Guide – Sections 1000, 3061, 3063, 3064, 3065, 3290, 3820
CAS 200 – Overall Objective of the Independent Auditor and the Conduct of an Audit in
Accordance with Canadian Auditing Standards
CAS 501 – Audit Evidence—Specific Considerations for Selected Items
6
CAS 560 – Subsequent Events
CAS Guide – CAS 200, CAS 501, CAS 560
CPEM - Practice Aids Form A.115 – Cash Count Procedures
CPEM - Practice Aids Form A.110 - Bank reconciliation checklist
CPEM: Program for accounts payable and accrued liabilities (CC.100)
CPEM: Program for property, plant and equipment (U.100)
CPEM: Core Concepts- Further Audit Procedures- External Confirmations
CPEM: Practice aids- Other Guidance Assurance- Confirmation Procedures
CPEM: Practice aids- Sample Engagement Forms
CAARS: Confirmation of Accounts Payable
HB 1601 – Consolidated Financial Statements
CAS 700 – Forming an Opinion and Reporting on Financial Statements
CAS 705 – Modifications to the Opinion in the Independent Auditor’s Report
7
CAS 706 – Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent
Auditor’s Report
CAS Guide – CAS 700, 705, 706
CPEM, Core Concepts: Audit Engagements - The Auditor’s Report
Copyright 2013 – CA School of Business
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Not to be released without expressed written consent
Student Overview
Page 8 of 10
2013
Week
Resource
CPEM, Audit Engagements Phase III- Reporting
Canadian Tax Principles – Chapter 20 - International Issues in Taxation
ITA 128.1(4)
IT-420R3
IT-451R
IT-120R6
IT-250(1)
IT-221R3
NR-73
NR-74
T4056- CRA Guide
Guide on Consolidation
Copyright 2013 – CA School of Business
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Not to be released without expressed written consent
Student Overview
Page 9 of 10
2013
EVOLUTION OF VISION WINDOWS LIMITED
Module 1
Module 2
Module 3
Module 4
Module 5
First 10 years
Next 2 years
Next 3 years
Next 3 years
Next 2 years
"The early years"
"Sale of Vision and the
audit/acquisition of
Western”
"Vision becomes a
multinational company"
"Time for some
introspection"
"Vision contemplates an
IPO"
Vision, incorporated by Hans
Supeene, expands to three
divisions: vinyl-clad
windows, metal doors, and
greenhouses and
greenhouse windows. As
with most companies, cash
flow issues arise, and
numerous personal and
corporate tax matters
require attention. Company
and external accountants
prepare and discuss
adjusting journal entries as
well as the presentation of
selected financial matters.
The company faces many
decisions including hiring a
new external accountant,
buying or leasing assets,
allocating costs to the three
operating divisions, and
having an audit or review
engagement performed.
Hans receives offers to buy
Vision. He engages a CA firm
to provide him with a
valuation report and
determine the tax effects of
each offer. Due to financing,
the intended purchaser is
unable to complete the
transaction. Two of Hans’
managers (Elmer Hughes
and Arnie Chan) express
interest, and are successful,
in completing the purchase
of Vision. Hans and his family
contemplate the tax
consequences of moving to
Belgium. The new owners of
Vision are eager to expand
the business. The new
owners add a third
shareholder, who has
experience in strategy, and
identify a potential
acquisition, Western Homes
Centres Inc. (Western).
Parkhurst and Loewen are
engaged to complete the
audit of Western.
The audit of Vision is
completed, and the company
acquires 80% of the shares
of Western. Vision purchases
100% of Dante Windows
Limited, a U.K. company.
With the added subsidiaries
there are many consolidation
and foreign currency issues
requiring careful attention.
The expanded accounting
department pays more
attention to variance
analysis, the need to acquire
new software, and the
adequacy of the company's
disaster recovery plan.
Management considers the
potential tax consequences
of issuing stock options to its
larger employee and
management group.
Vision’s controller, Denise
Charron, moves to England
to run Dante Windows
Limited. The new controller's
first job is finalizing the
financial statements for the
year-end audit. Both
Western and Vision
experience operational and
financial challenges, as
evidenced by Vision's loss.
The three shareholders
realize they will not achieve
their goal of taking Vision
public unless they focus
more attention on
governance and strategic
planning. In conjunction with
making improvements in
governance, Vision considers
two new investment
opportunities. As Vision is
unable to secure financing
with its bankers, it focuses
attention on short-term cash
flow management and
approaches Brennan
Brothers, a venture capital
group, to provide additional
financing
Vision’s managers explore
financial reporting, financing,
taxation, regulatory and
governance issues
associated with a potential
initial public offering on the
Toronto Stock Exchange.
The company’s internal and
external accountants
address a variety of issues
including the identification
and audit of related parties,
information technology
controls, tax planning,
accounting for pension
plans, segment reporting
requirements, accounting for
financial instruments, and
international financial
reporting standards.
Student Overview
Copyright 2013 – CA School of Business
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Not to be released without expressed written consent
Page 10 of 10
2013