Auditing is one of the most vital functions of accounting in every organization. The function promotes accountability and transparency of financial disclosure. In this case, an audit of the company’s accounting information is to highlight various accounting issues and recommend the most appropriate measures that are in tandem with the requirements of ASPE. Pertaining to the company’s case scenario, accounting issues that have been identified should be handled as follows.
The issue of Claims
The legal letters did not specify the actual amount for the claims. This, therefore, contravenes the ASPE requirements which provide that all claims should be recorded in the legal letter before presentation to the auditor. The claims and estimations, in this case, are not presented in the financial statements as required by ASPE. The best treatment is to account for all the legal claims by classifying them among the company’s current liabilities in the financial statements.
Decision on Ice and Desert Wines
Despite the fact that the company’s management has considered the decision to discontinue making desert wines and ice, the two products are evidently the most the most profitable for the organization. As the auditor, my advice to the management is to properly assess the decision due to the fact the two products have higher sales than cash flows for the last three years. Low cash flow is a good indicator of reduced expenditure in investment and other costs incurred during the production of the two products.
The decision to sell the production machinery for producing deserts wines and ice qualifies for a hold of sell. The board and the management of the organization have legitimized the intention to sell as required by ASPE. The machinery is therefore available for immediate sale since there is vigorous search for a buyer. Despite the fact that the company can possibly sell the machinery within a year, it has not been reasonably priced as required by ASPE provisions. Under the provisions, the element of depreciation is not recognized for non-current assets that are held for sale. Therefore in this case, the company should price the machinery based on its features such performance. The asset should be revalued at cost of the expected carrying value in comparison to the tag price of sale. In this regard, the quoted price of $ 450,000 is therefore very low. The best deal for SF is to consider selling the machinery to a potential buyer who is willing to pay a deposit of 25% and pay the rest in monthly installments.
The information on income and loss from desert and ice wines before depreciation shows that the company may incur more losses if the machinery is maintained under operation. However, the presented information is not very comprehensive since it does not indicate the operational and non operational aspect of the plant. It is important for an organization to disclose both income and loss information for an asset when it is placed on sale.
On the issue of 30% tax rate the company does not comply with the requirements of ASPE on how to handle deferred taxes. Under these provisions an organization is mandated to identify particular income tax benefits or expenses which arise from discontinued operations, continuing operations and other comprehensive incomes.