PonyUp Stables

- Small family run business

- Winter 2013 announced shutting down, cant turn profit
- Acquired April 1, 2013
New ownership bank needs audited FS

First time YE FS audit.

Now: April 25, 2014
Role: Senior Audit
Draft FS: March 31, 2014
Required: Planning memo, procedures for significant areas, and identify accounting
issues, clients asked if there could be improvements in controls
Note: all have separate jobs, do not seem to take a large managerial role. Related party
transactions may be an issue

Audit: control testing

Required:

- Recommendations for controls

- Audit planning memo engagement partner

Important Information
Role: Senior Auditor
User of Report: Engagement Partner
Users of F/S: Bank, Owners
Other:
F/S in accordance with ASPE

Key/Critical Success Factors

- Other owners have similar interest business: veterinarian, animal galaxy and horse ride
instructor
- Horse Riding lessons and Stable rental industry
- Owners have other occupations and this is not their full-time focus
- ** ask for cash flow statement, bank account balances, related invoices bank
reconciliations
- Assurance: Assertion< procedure, --- ect

Overall Theme:
 - Little controls
1. Boarding Fee Revenue Revenue Recognition
14 stalls used
11 rented
Board- sign 24 month contract,
initial fee 1000 recorded as revenue when received
Monthly boarding fee of 350, after 24 months increases to 400/month
Should be allocated over 24 month period, not all recorded when received
Follow aspe follow earnings approach
Revenue 3400
the seller of the goods has transferred to the buyer the significant risks and rewards of
ownership, in that all significant acts have been completed and the seller retains no
continuing managerial involvement in, or effective control of, the goods transferred to
a degree usually associated with ownership; and
(b) reasonable assurance exists regarding the measurement of the consideration that will
be derived from the sale of goods, and the extent to which goods may be returned.
long-term contracts, performance shall be determined using either the percentage of completion
method or the completed contract method, whichever relates the revenue to the work accomplished.
Such performance shall be regarded as having been achieved when reasonable assurance exists
regarding the measurement of the consideration that will be derived from rendering the service or
performing the long-term contract.

2. Horseback Riding Revenue - $50 a session, 3 hours put on schedule, but no noted
controls for schedule
a. Three hour session
b. Occurance? Completion all
3. Service Fee Revenue and Expense similar to consignment, should not receive the
revenue and remit the expense, should only be recording the $75 of revenue ASPE
doesnt have as strict rules. No impact on Net income, impact on expenses and revenue
a. IFRS IFRS 15 B77
b. Consignment arrangements
c. B77 When an entity delivers a product to another party (such as a dealer or a
distributor) for sale to end customers, the entity shall evaluate whether that other
party has obtained control of the product at that point in time. A product that has
been delivered to another party may be held in a consignment arrangement if that
other party has not obtained control of the product. Accordingly, an entity shall not
recognise revenue upon delivery of a product to another party if the delivered product
is held on consignment.
d. B78 Indicators that an arrangement is a consignment arrangement include, but
are not limited to, the following:
e. (a) the product is controlled by the entity until a specified event occurs, such as the
sale of the product to a customer of the dealer or until a specified period expires;
f. (b) the entity is able to require the return of the product or transfer the product to a
third party (such as another dealer); and
g. (c) the dealer does not have an unconditional obligation to pay for the product
(although it might be required to pay a deposit).
 4. Riding Lessons Paid to instructor, shouldnt be recorded as revenue but because
there is a cash or cheque payment, there should be controls
a. Check invoice statements, some form of receipts
b. Assertion: Accuracy, Completeness, Occurance
5. Cash
a. Bank Confirmations
b. Existence, Rights & Obligations
c. Bank Reconciliations and Testing
d. Completeness, Existence, Valuation
6. Related Party: Non-cash transaction exchange for services FMV of what youre
giving up, and whos is more reliably measured
a. ASPE Section: 3831 When an entity is able to reliably determine the fair value of
both the asset received and the asset given up, the fair value of the asset given up is
used to measure the asset received unless the fair value of the asset received is
more reliably measurable.
b.
7. Related Party Transactions
a. Related Party Criteria:
i. Sarah has 20% stake in Animal Galaxy control
ii. Megan has 40% stake in Animal Galaxy significant control
Related to each other sister-in laws (f) section 3840.04 Members of the immediate family of
individuals described in (b), (d) and (e). (Immediate family comprises an individual's spouse and
those dependent on either the individual or the individual's spouse.)
iii.
iv. Thus accounted for by the equity method
b. ASPE 3840: Related parties exist when one party has the ability to exercise,
directly or indirectly, control, joint control or significant influence over the other. Two
or more parties are related when they are subject to common control, joint control or
common significant influence. Related parties also include management and
immediate family members (see paragraph 3840.04).
c. When a related party transaction is measured at the carrying amount, any difference
between the carrying amounts of items exchanged, together with any tax amounts
related to the items transferred, shall be included as a charge or credit to equity.
d. Can account for it at the exchange amount or the carrying amount go through the
chart not normal operations, measured at carrying amount
e. Therefore the transaction should have been recorded the $14,000, not the $11,000
f. PonyUp should adjust this transaction
8. Convertible Loans
a. ASPE Section 3856.20 convertible interest free loan
b. Equity portion goes to 0
c. .22 Acceptable methods for initial measurement of the separate liability and equity
elements of an instrument to which paragraph 3856.21 applies include the following:
d. (a) The equity component is measured as zero. The entire proceeds of the issue
are allocated to the liability component.
e. (b) The less easily measurable component is allocated the residual amount after
deducting from the entire proceeds of the issue the amount separately determined
for the component that is more easily measurable.
 f. The sum of the carrying amounts assigned to the liability and equity components
on initial recognition is always equal to the carrying amount that would be ascribed to
the instrument as a whole. No gain or loss arises from recognizing and presenting
the components of the instrument separately.
g.
h. Criteria for related parties: didnt exchange at market value should have
recorded it as 14,000
i. CPA handbook:
j. Commercial Substance
k. 10,000- interest free loan
l. long term liability not equity
m. ASPE value at $0 residual value method
n. Fixed anumal principal payment 2000 in current in liabilities
o. 8000 in long term liabilits
p. CONVERTIBLE GO OVER!!
q. Assertion: Classification
r. Current liabilities: 2000
s. Long term 8000
t. Should be moved out of investments and to the liabilities** correct
9. Main employee
a. Recommendation involve someone else in reconciliations and confirmations,
owners should review
b. Prepares deposits and updates records
c. CAS 315
d. A133

10. A96. Control activities are the policies and procedures that help ensure that management
directives are carried out. Control activities, whether within IT or manual systems, have
various objectives and are applied at various organizational and functional levels. Examples
of specific control activities include those relating to the following:
11. Authorization.
12. Performance reviews.
13. Information processing.
14. Physical controls.
15. Segregation of duties.

Issue:
Was it accounted for correctly:
Alternatives:
Recommendations
Impact on F/S

Layout

Recalculate NI
PPE and Inventory

Recommendation and Conclusion