Reference no: EM133253970

Assignment Narrative

You are beginning your last couple of weeks with ERC. You are becoming more comfortable with using Profile, Excel, and Word in a business setting but realizing that when applying your knowledge to clients, you often have to review class notes or do research which is to be expected. Jean greets you when you get to your desk.

Jean: You are doing a great job applying your knowledge to your work at ERC. It always feels like a steep learning curve at first but it gets easier once you have more experience. Remember to ask me questions whenever you need help. The tasks should be interesting and somewhat challenging but not take you too long to complete. So, if you find yourself ‘spinning your wheels', make sure you contact me as soon as possible.

You will notice on your work schedule that our office is closed next week for the holiday. Since you will be busy juggling different client files, and you leave soon for your next work term, you won't have any meetings scheduled for next week to allow you to work on the clients' tasks for the upcoming deadlines. You don't want to delay in working on the files as you will be starting your new work term soon and you never know what work they will have for you.

Speaking of clients, you will be working on the T1 tax returns for Susan Bakker and her husband Scott. I have had their T4 information scanned. As well, I had a co-op student summarize their other tax information in Excel. Both of these items are on the firm's D2L site.

You and Jean look at the D2L site and you recognize many of the tax issues but realize that you will need to refresh your mind on some of the tax topics which is to be expected.

Jean: Susan also sent an email that I have forwarded to you (Appendix A). It contains some additional tax information regarding her home expenses. She also asked about why the income reported on her income statement differs from what she reports for tax purposes. I want you to prepare a reconciliation of the two in Excel for her so that she can clearly see the differences, with explanation.

I need to go and answer this call, I will be right back.

While Jean is away, you look at the tax information and some of it is familiar. For items that you are not sure about, you remind yourself that you have lots of good reference material, such as the CRA website, to help you as well as your course materials and textbook from ACCT 240 and 375. As well, you can always ask Jean for assistance via the discussion board.

You start organizing the tax information for Susan's and Scott's tax returns as you have already learned the importance of being organized with any files. It is much better to get the information arranged, with a clear idea of what you need to do, what research is needed, etc. rather than jumping right in blindly. You are just about to start up Profile when Jean returns.

Jean: In addition to taxes, I also want to give you some experience with business advising that applies your skills from school. In particular, I want you to help me with a new client, Bijan Dewster, owner of Pie in the Sky. I met Bijan at a local farmer's market and in talking with him, he needs advice regarding how to best use his limited resources to maximize profit. You likely discussed this topic in one of your cost accounting courses. Now you get a chance to use that knowledge. I want you to draw on your management accounting experience, with any calculations in an appendix in Excel, and draft a memo response.

You look at the questions and think to yourself, "mmmmm...pie..."

Jean: Lastly, I also want to give you some experience with a review engagement. When you drafted the financial statements for Environmental Cleaners for Susan, you were performing a compilation engagement as you were just compiling the information given by her. You did not perform any review or audit procedures to provide assurance that the statements were fairly stated. Last week, you gained some experience with planning an audit and cut-off audit procedures. Now I want you to gain experience with a review engagement.

Review standards were recently revised, with the Canadian Standard on Review Engagements (or CSRE) adopted in Canada. It is more of a risk-based approach to review engagements which helps to ensure that we focus on areas where there is greatest risk of error.

As you may recall, review engagements use analysis, discussion and enquiry as their assurance procedures. As a result, I want you to gain further experience with analysis, as well as enquiry, as being able to detect if numbers appear reasonable is a key skill for any accountant, whether performing a review engagement or assessing statements as a controller or an investor for instance.

You are going to work on the review engagement for Custom Products Inc ("CPI") which is owned by Emma Park. CPI has been a tax client since 2016 but she has never had a review engagement before.

` The accountant for CPI has reconciled the bank account so the cash account would be fine.
When reviewing the other accounts for reasonableness, we need to be aware that unexpected changes or interrelationships between accounts could indicate a material error but it could also indicate a legitimate change in the business. We need to ask appropriate questions to determine which it is. Clients can get frustrated with accountants who ask vague questions such as ‘why did the account change', ‘is there a mistake' or ‘did you do all the entries' or questions that aren't appropriate given their business, such as asking about rent when a company owns its own property. So I want to ensure that you get some training on doing basic analysis and effectively asking questions to a client.

From speaking with Emma, the business seems to be similar to the prior year in terms of products and pricing. I made some notes from my discussion with her (Appendix C).

For the review, I want you to ‘eye ball' the statements, looking for accounts and interrelationships that do not appear plausible. You can supplement it with some ratio calculations if you feel it necessary but I don't want you to get carried away with calculations. As professional accountants, it is important that we can review or ‘eye ball' statements, looking at the interrelationship of accounts, and assess whether the relationships make sense.

Based on this analysis, I want you to identify five interrelationships that appear unusual. They can be specific accounts but usually ‘eye balling' is more effective if you review related accounts together. I want you to write to me explaining why you think those five relationships appear unusual and warrant follow up. I then want you to prepare a probing follow-up question

that I can ask the client when I meet her. Asking probing questions is also an important skill for an accountant. You want the question to be sufficiently directed that its response will help you assess if the interrelationship makes sense. For instance, it is more effective to ask as probing question such as "was the useful life of the capital assets extended, which caused amortization to be less this year?" rather than generic questions such as ‘why did amortization expense decrease?''.

Well, I think you have plenty of work to keep you busy! Remember that our office is closed next week so please keep in touch with me by posting on our firm's intranet discussion board site (don't email me) (D2L discussions).

Task 3a Profile Tax Return

Prepare, using Profile, the T1 return for the Bakkers for 2021. You will need to complete T2125 in Profile for Susan's self employed income. Any supporting calculations or explanations should be shown in Excel. Note: Remember to only submit one Excel file so you should add sheets as needed for tax calculations and any other tasks.

Assume that EC has not claimed any CCA on its assets to date. You will need to determine the appropriate CCA class for the assets.

Task 3b Reconciling accounting income and income for tax

Prepare, in Excel, a reconciliation for Susan that compares the net income reported on EC's income statement from week 1 prepared in accordance with ASPE with the Net income (Loss) reported before adjustments on line 9369 of the T2125.

Beside each reconciling item in Excel, you should provide a brief explanation regarding why the item is added/deducted in the reconciliation. The reconciliation should have the following format:

Task 3c Memo to Bijan

In Word, write a brief one-page memo to Bijan that assesses his situation and recommends a plan of action regarding which pies to produce. Supporting calculations should be shown in Excel.

Task 3d Analysis - Memo to Jean

In Word, identify five interrelationships from the financial statements that you think should be further discussed with the client. You should explain why you think the relationship appears unusual and prepare a follow-up probing question for Jean to use in meeting with the client.

Attachment:- Applied Professional Practice.rar