Case

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• Slower USA economy and approximately 40% sales to the USA customers

• US conversion rate had not been updated in Razor’s system for half of the year, and as a result, the company recorded US sales at the same rate throughout that period. Therefore, the variations in foreign exchange gains/losses may be more significant than last year

• They need to maintain their current ratio of 1:1, which increase the chances of misstating their financial statement

Factors reducing risks

• They have limited time to get their financial statement audited, which is requested by bank and two of their suppliers.

Audit Procedure: We need to use the substantive procedures as they error that can impact the decision-making of the users of the financial statement.

Materiality: Their financial statement is important to the bank and their two large suppliers; therefore any error in the Accounts receivable can increase or decrease their current ratio. Loans, Current Ratio and covenants are involved, which are based on the financial statement. This makes any error material

Procedures:

Accuracy: Need to confirm eh receipt to the customer with the accurate exchange rate for the USA customer. In addition, confirming the sales prices for steel with the actual steel price in the month it was sold.

Razor’s Edge Laser Cutting

TO: Bank; CFO Kris; Lionel (partner on the engagement)

From:

Re:

Exhibit 1

• A/R <90 days

• Manley Farm Equipment; $225,000 category <180 days

• Patent bought for $4 million; amortization for 20 years; impairment the patent 5%

• Scrap used as Inventory; $800,000 (Might need to be recorded at the fair value?)•

Exhibit 3

• Not confirming account with the Manley Fluctuation in the price

• Bank indicated interest rate on confirmation 2% higher than the agreement

• Conversion rate have not been updated in their system in the last year

• Doyle injected $2 million in to the company and recorded as the preferred share

Exhibit 4

• Financing availability of $12 million

• Maintain the current ratio of 1.1. If they don’t have current ratio for two successive quarters unable to make a large capital purchase for a minimum of 180 days.

• If missing the current ratio for the 3 consecutive quarters the entire amount is payable on demand