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SUPERIOR FITNESS LIMITED (SFL)

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SUPERIOR FITNESS LIMITED (SFL) MEMO TO PARTNER PRELIMINARY AUDIT PLANNING ISSUSES Independence B&B must ensure that we maintain our independence with respect to both recommending accounting poli ... cies and performing an assurance engagement given Devon and the bookkeeper are both unsophisticated in accounting. To do so, we will need to implement safeguards, such as ensuring that SFL makes all accounting policy decisions and that they continue to perform the day-to-day accounting function. We will simply identify areas where the current accounting practice is not in accordance with Canadian GAAP. Materiality Preliminary materiality must be set. The users of the financial statements of SFL include Devon, who will use the financial statements to assess performance of operations, and the bank, which requires the financial statements as part of the loan agreement to assess SFL’s ability to repay the loan. We will take into consideration these users when setting our materiality level. Given these users, materiality could be 5%, or less, of income from continuing operations. However, the revenue recognition adjustments are likely significant enough to put SFL into a loss position and as a result we may not be able to use income as a basis for determining materiality. If SFL is in a loss position after the adjustments noted below, we should use ½% of revenue as the basis for materiality since revenue should be relatively stable and reflective of the scale of the operations. [Show More]

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