Premium Essay

Not for Profit

In: Business and Management

Submitted By Pavan1990
Words 1276
Pages 6
MEMO
To: Partner, Eagle Construction Corporation (EC)
From: CPA, Audit Senior
Re: EC Draft Audit Plan
Analysis of New Accounting Issues
Patent Foundation Process
I - “[An engineer inspector] expressed concerns regarding the quality of the foundation process in a letter sent to EC. To date in the US, EC has only built single unit projects that did not use the process.”
G - An intangible asset shall be recognised if, and only if:
(a) it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; and
(b) the cost of the asset can be measured reliably.
R -
Risk -
Procedures- Hire patent evaluator to determine economic benefit.
Inventory Valuation
I - Due to the “Doing What You Do” Program, “[a manager] incorrectly authorized the purchase of $900,000 of construction project materials as a result of misunderstanding a submitted purchase request. To make matters worse, the price of these particular construction project materials has recently declined 25% due to increased overseas competition.”
G - Inventory is valued at the lower of cost or market value. The inventory is being held at cost, however, due to the increased competition, inventory value has decreased. The inventory should be valued at the market because it is the lowest value, therefore this condition is not met.
R - Inventory should be written down by 25%, or $225,000 due to the exchange rate decline. However, management will be reluctant to do any adjusting entries because it will decrease their working capital ratio, which, along with other adjusting entries, could lower it below the debt covenant of 1.35, as well as lower their LOC.
Risk - Inventory valuation is high risk because amounts are not being recorded at the lower of cost or market.
Procedure - Compare a sample of recent supplier invoices to the costs listed in...

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