ACCT 4225 Case #3 (Modules 3 to 6)

Case Study > ACCT 4225 Case #3 (Modules 3 to 6)

Mount Royal University ACCT 4225 Date: September 15, 2021 Role: CPA Team of Advisors hired to support management in developing an appropriate system of internal controls for a new company that has been created to provide a Covid-related service or product (note: it will be up to the Team to decide what product or service the company is focused on � ...[Show More]

Mount Royal University
ACCT 4225
Date: September 15, 2021

Role: CPA Team of Advisors hired to support management in developing an appropriate system of

internal controls for a new company that has been created to provide a Covid-related service or product

(note: it will be up to the Team to decide what product or service the company is focused on – pick just

one product or service to simplify the processes)

Client: Covid Response Company A has just started up and its first year end will be August 30, 2021. The

company reports using ASPE and the financial statements will be audited to meet bank loan covenants,

one of which pertains to accounts receivable (they are pledged as collateral for the business startup and

equipment loan the company took on in summer 2020).

Background: You are in the stage of reviewing the background information that the client has been

able to provide in advance of your meeting (it’s pretty sketchy – which is par for the course for new

clients and start up businesses):

 The bank loan they were able to get was for $500,000 using the personal guarantee of the sole

shareholder Chaman Anders.

 They currently have 4 employees – Chaman and three others (they have capacity to work fulltime but some are not yet 100% busy)

 Business has been booming and they have had no time to document their processes and do any

record-keeping yet. The bank is providing online payroll processing and Chaman is the admin as

they have full control of the banking activities.

 They optimistically project to have sales of $1M to $2M in a full year.

Key Deliverables: Chaman wants advice and clear documentation of the process that should be

followed for handling the purchase-payables-payments cycle. They expect a report with the following

Part A: Process Advisory Services

1. A process flowchart focused on the most important, i.e. key, controls for handling purchases

necessary to carry out the company’s main business. Focus on the main trade goods purchased

(equipment is already in place), the inventory management, and how to/ who pays the bills (10

marks)