Title of Assignment Course Name Subject: Advanced External Audit Assignment Detail: Please read the attached LRM Construction Company case. Based on your reading please Identify problems related to...

Title of Assignment
Course Name
Subject: Advanced External Audit
Assignment Detail:
Please read the attached LRM Construction Company case. Based on your reading please Identify problems related to payroll increases and effect on audit
Assignment Instructions:
Write a memo to the appropriate individual in the appropriate format (The memo format: To, From, Date, Subject, Introduction, Main body should have 5 paragraphs [each paragraph will represent the following requirements], Conclusion). The memo should include the following:
1. Identification of the problem. (Important Hint: Payroll expense is not the problem). Construction expenses (cost of doing business) could be the problem.
2. Discussion of the effect of the problem on the cu
ent year f/s, including the assertion and the account balance affected
3. Discussion of the effect on fraud risk in general on the audit based on the requirement of CAS 240 (Please see attachment), including any actions that the auditor should take.
4. Discussion of the effect on the audit, including what the auditor should do as a result of the additional identified risk (Fraud Risk). Be specific as possible and include specific procedures where appropriate.
5. Identify whether there are any additional reporting requirements under CAS 240 (Please see attachment) indicating why and to whom. (Important Hint: Not audit report or communication with governance.)
For 3, 4 and 5 above provide the appropriate CPA Handbook reference from CAS 240 (Please see attachment) Based on the above areas.
Attachments:
· LRM Construction Company Case
· CAS 240
1 | School Name: Course Code/Name
    1
    School of Business
© 2016, Southern Alberta Institute of Technology
C
OURSE
N
AME
1

School
of Business

© 201
6
,
Southern Alberta Institute of Technology
Su
ject: Advanced External Audit

Assignment Detail:

Pl
ease read the attached
LRM Construction Company

case
. Ba
sed on your
ea
ding please
Identify problems related to
payroll increases and effect on audit

Assignment
Instructions
:

Write a memo to the appropriate individual in the appropriate format
(The memo
format
: To,
From, Date, Subject, Int
oduction, Main body

should
have 5 paragraphs

[
each
paragraph

will represent the
following

equirements
]
,

Conclusi
on)
.

The
mem
o should include the fo
llowing
:

1.

I
dentification of the problem
.

(Important

Hint
:

Payroll expense

is not the
probl
em
)
.
C
onstruction expenses (cost of doing business)

could be the
problem.

2.

Discussion of the effect of the problem on the cu
ent year f/s, including the
assertion

and the account balance affected

3.

Discussion of the effect on fraud risk
in general

on the audit based on the
equirement of CAS 240

(Please see attachment)
, including any actions that
the aud
itor should take.

4.

Discussion of the effect on the audit, including what the auditor
should

do as
a result of the additional identified risk

(Fraud Risk)
. Be specific as possible
and include specific procedures where appropriate
.
5.

Identify whether there are
any
additional reporting requirements under CAS
240
(Please see attachment)
indicating why and to whom
. (Imp
ortant

Hint
:
Not
audit report or communication with governa
nce.
)

For
3,
4

and 5

above provide the appropriate CPA Handbook reference from CAS
240

(Please see attachment
)
Based on the above

areas
.

Attachments:

·

LRM Construction Company
Case

·

CAS 240

COURSE NAME

1 School of Business
© 2016, Southern Alberta Institute of Technology

Subject: Advanced External Audit
Assignment Detail:
Please read the attached LRM Construction Company case. Based on your
eading please Identify problems related to payroll increases and effect on audit
Assignment Instructions:
Write a memo to the appropriate individual in the appropriate format (The memo
format: To, From, Date, Subject, Introduction, Main body should have 5 paragraphs
[each paragraph will represent the following requirements], Conclusion). The
memo should include the following:
1. Identification of the problem. (Important Hint: Payroll expense is not the
problem). Construction expenses (cost of doing business) could be the
problem.
2. Discussion of the effect of the problem on the cu
ent year f/s, including the
assertion and the account balance affected
3. Discussion of the effect on fraud risk in general on the audit based on the
equirement of CAS 240 (Please see attachment), including any actions that
the auditor should take.
4. Discussion of the effect on the audit, including what the auditor should do as
a result of the additional identified risk (Fraud Risk). Be specific as possible
and include specific procedures where appropriate.
5. Identify whether there are any additional reporting requirements under CAS
240 (Please see attachment) indicating why and to whom. (Important Hint: Not
audit report or communication with governance.)
For 3, 4 and 5 above provide the appropriate CPA Handbook reference from CAS
240 (Please see attachment) Based on the above areas.
Attachments:
 LRM Construction Company Case
 CAS 240

Implementation Tool for Auditors: CAS 240 Identifying, Assessing and Responding to the Risk of Material Misstatement Due to Fraud in Revenue Recognition
1
STANDARD DISCUSSED
CAS 240, The Auditor’s Responsibilities Relating
to Fraud in an Audit of Financial Statements
Identifying, Assessing and Responding to the Risk of Material
Misstatement Due to Fraud in Revenue Recognition
This publication is an Implementation Tool for Auditors (Tool) designed to provide non-
authoritative guidance to help you identify, assess and respond to the presumed risk of
material misstatement (ROMM) due to fraud in revenue recognition. This Tool does not
address all the requirements in Canadian Auditing Standard (CAS) 240, The Auditor’s
Responsibilities Relating to Fraud in an Audit of Financial Statements.
Material misstatements due to fraudulent financial reporting often result from an over-
statement of revenue. They may result also from an understatement of revenue. Therefore,
when identifying and assessing the ROMM due to fraud, the auditor shall, based on a
presumption that there are risks of fraud in revenue recognition, evaluate which types of
evenue, revenue transactions or assertions give rise to such risks. Furthermore, the auditor
shall design and perform further audit procedures whose nature, timing and extent are
esponsive to the assessed risks of material misstatement due to fraud at the assertion
level. If an appropriate response to the assessed risks is not designed and implemented,
the auditor may not have sufficient appropriate audit evidence to conclude whether the
financial statements are materially misstated.
JUNE 2016
Implementation Tool for Auditors
CANADIAN AUDITING STANDARD (CAS)
2 Implementation Tool for Auditors June 2016
Diagram 1 illustrates an approach to identifying, assessing and responding to the ROMM due
to fraud in revenue recognition based on the requirements included in paragraphs 16, 25-27
and 30 of CAS 240. You will need to adapt your approach to the specific circumstances of
your audit engagement.
This Tool will not discuss the requirement for the auditor to determine an overall response
to address the assessed ROMM due to fraud at the financial statement level, as required by
paragraphs XXXXXXXXXXThis Tool also does not address other aspects of auditing revenue. See
Appendix 1 for a diagram that summarizes all the requirements in CAS 240.
Diagram 1
P
o
fe
ss
io
na
l S
ke
p
ti
ci
sm
P
o
fe
ss
io
na
l J
ud
g
m
en
t
D
o
cu
m
en
ta
ti
o
n
Step 1: Indentify the entity’s types of revenue
and revenue transactions. [CAS 240.16]
Step 2: Evaluate which types of revenue, revenue
transactions or assertions give rise to the ROMM due
to fraud in revenue recognition. [CAS 240.26]
Step 3: Conclude on which types of revenue, revenue
transactions or assertions give rise to the ROMM due
to fraud in revenue regonition.
Step 4: To the extent not already done so, obtain
an understanding of the entity’s controls, including
control activities, relevant to the identified risk. [CAS 240.27]
Step 5: Design and perform further audit procedures to
espond to the identified risk. [CAS 240.30]
Conclusion: ROMM due
to fraud in revenue
ecognition is not identified
for any type of revenue o
revenue transaction.
The auditor shall document
the reasons for that
conclusion. [CAS 240.47]
Conclusion: ROMM due
to fraud in revenue
ecognition is identified
for a type of revenue or
evenue transaction.
The auditor shall document
the reasons for that
conclusion and treat those
assessed risks as significant
isks. [CAS 240.27]
June 2016 Implementation Tool for Auditors 3
This Tool will examine each step in further detail and provide examples as well as practical
considerations for complying with the requirements; however, there may be other ways to
comply with the requirements in your situation that are not covered in this Tool.
Auditors are reminded to exercise professional judgment in planning and performing an
audit of financial statements and to maintain professional skepticism throughout the audit.
It is important to recognize the possibility that a material misstatement due to fraud could
exist, notwithstanding the auditor’s past experience of the honesty and integrity of the enti-
ty’s management and those charged with governance.
Additionally, while this Tool does not discuss the documentation requirements within each
step, auditors are reminded to prepare audit documentation that is sufficient to enable an
experienced auditor, having no previous connection with the audit to obtain an understand-
ing of the nature, timing and extent of audit procedures performed, the results and audit
evidence obtained and the significant matters that arose during the audit as required by para-
graph 8 of CAS 230, Audit Documentation.
Step 1
Identify the entity’s types of revenue and revenue transactions.
Obtaining an understanding of the entity’s types of revenue (i.e., revenue streams) and the
evenue transactions within each type of revenue is the first step in identifying and assessing
the ROMM and developing an appropriate audit response. This understanding is necessary in
order to evaluate whether there is a ROMM due to fraud in revenue recognition