The strength of an internal control questionnaire is that it provides a

systematic and comprehensive way to evaluate internal control.

A strength of using a flowchart is that it provides a diagrammatic
representation of the entity’s internal control system. This facilitates the
auditor's analysis of the system's controls.

b. On many engagements, auditors combine these tools to document their

understanding of the components of internal control. The combination depends
on the complexity of the entity’s internal control system. For example, in a
complex information system where a large volume of transactions occurs
electronically, the auditor may document the control environment, the entity’s
risk assessment process, and monitoring activities using a memorandum and
internal control questionnaire. Documentation of the information system and
communication component, as well as control activities, may be accomplished
using an internal control questionnaire and a flowchart.
For a small entity with a simple information system, documentation using a
memorandum may be sufficient.

6-25 a. The internal auditor would have the following concerns with respect to
individual entries:
 The reasonableness of significant entries (e.g., manual entries in
traditionally automated accounts such as inventory),
 The review of the appropriateness of the individual who prepared the
journal entry (e.g., senior executives or unauthorized personnel),
 The review of the frequency of journal entries, particularly those that are
relevant to management authorization levels,
 The identification of journal entries without descriptions, and
 Potentially fraudulent entries.

b. The external auditor could rely on the internal audit’s work, but not to the
exclusion of reperforming some of the internal audit’s work. According to
CAS 610, the external auditor should assess the competence and objectivity of
the internal audit function before reliance on its work.

6-26 a. Before applying principal substantive procedures to balance sheet accounts as

at April 30, 2025, the interim date, Cook should assess the difficulty in
controlling incremental audit risk. Cook should consider whether
Cook's experience with the reliability of the accounting rec

25-1. a. PV(Lease payments) =

 This is 46,559.09 / 50,000 = 93.1% of the purchase price. Because it exceeds 90% of the
purchase
price, this is a capital lease.
b. The lease term is 75% or more of the economic life of the asset (75% × 8 years = 6 years),
and so this is a capital lease.

PV(Lease payments) =
The following violations of the prinсiple of separation of
ԁuties are observeԁ in situations a to k:

a. Payroll сlerk reсorԁeԁ hours anԁ сasheԁ payсheсk for a

terminateԁ employee.

Risk Reԁuсtion: Separate payroll preparation, approval, anԁ

ԁisbursement ԁuties; verify employee status before
proсessing payments.

ended December 31, 2025 and December 31,

2024, and notes to the consolidated financial
statements, including a summary of significant
accounting policies (collectively referred to as
the “financial statements”).
In our opinion, the accompanying financial
statements present fairly, in all material
respects, the financial position of the
Company as of December 31, 2025 and
2024, and its financial performance and its
cash flows for each of the years ended
December 31, 2025, and December 31,
2024, in accordance with International
Financial Reporting Standards as issued
by the International Accounting
 Identify controls to test using a top-down, risk-
based approach.
  Test the design and operating effectiveness of
selected controls.
 Evaluate identified control deficiencies.

7-1 (Refer to Table 3-2). The following factors can be used

to judge the objectivity of the internal audit
function:
Whether the organizational status of the IAF, including the
function’s authority and accountability, supports the
ability of the function to be free from bias, conflict of
interest, or undue influence of others to override
professional judgments (e.g., the IAF reports to audit
committee or an officer with appropriate authority, or if
the function reports to management, whether it has
take place evenly throughout the year, the average rate for the year is used to
approximate the rate for each day of the year. If all the sales occurred on one day of the
year, the sales would be translated at the rate on the date of the sales.
Amortization expense 2,000
Accumulated amortization 2,000

Land 22,000
Building 80,000
Cash 102,000

Deferred contribution revenue 22,000

Net assets – contribution for land 22,000

(iii) December 31, Year 6

(80,000 / 20) × 6 / 12 = 2,000

 I. Canadian-Controlled Private Corporation (CCPC): The corporation must be

a Canadian-controlled private corporation, meaning that it is incorporated

in Canada and is not controlled by non-residents or public corporations.

II. Active Business: The corporation must primarily carry on an active

business in Canada. This means that the corporation is engaged in an

active trade or business rather than passive investment activities.

III. Asset Test: At least 90% of the fair market value of the corporation’s assets

must be used in an active business carried on primarily in Canada. This

ensures that the corporation’s activities are focused on operating a

business rather than holding passive investments.

IV. Not a Professional Corporation: Certain professional corporations, such as

those operated by lawyers, doctors, or accountants, are excluded from

qualifying as QSBC

 Tax expense:
  SUBTRACT Tax Expense associated with Unrealized Gain
on Sale of Asset, in the year of the intercompany
transaction
ADD Tax Expense associated with Realized Pre-Tax Gain on Sale of

Asset by Depreciation in the year AND Repeat the The difference

between the two methods is illustrated in Exhibit I using the August 31, Year 5 draft
financial statements for SAPI.

Under the FCT method, an exchange gain/loss will occur when

monetary items are settled or translated at a rate different than
the one used to record the transaction originally. Because the
non-monetary items are translated at the historical rate
600,000
CPA Canada Handbook — Part III, Section 3032 only applies for inventory distributed at
no charge. Since the inventory that MMB will be distributing will be at a charge, the
inventories for MMB will follow CPA Canada Handbook — Part II, Section 3031
Inventories. Section 3031 requires the cost of inventories to include all costs of
purchase, costs of conversion, and other costs incurred in bringing the inventories to
their present location and condition.

4. Equipment and furniture 950,000

Cash 950,000

Amortization expense 90,000

Accumulated amortization 90,000

Deferred contribution revenue 90,000

Revenue 90,000

5. Cash 30,000
Fee revenue (30,000 / 12 x 3) 7,500
Amortization should also be calculated and recorded. I suggest that depreciating the
assets over their useful lives on a straight-line basis will be the simplest option. An
example of possible useful lives is as follows; however, more information is needed to
determine useful lives.

 Freezers — 5 years
 Pasteurizer — 20 years
 Office furniture — 5 years
 Computers — 2 years
 Software — 2 years

Inventories [Section 3031.11]

Assume that the functional currency of the reporting entity is the Canadian dollar. Under
the FCT method, the exchange rate is applied to produce a translated amount
consistent with the way we normally measure assets and liabilities. If an item is to be
measured at historical cost, we should apply the historical rate to the historical value
in foreign currency to derive the historical cost in Canadian dollars. If an item is to be
measured at current value, we should apply the closing rate to the current value in
foreign currency to derive the current value in Canadian dollars.

10. On the date of acquisition, when the parent takes control of the subsidiary, it is
indirectly purchasing the underlying assets and assuming the underlying liabilities of
the subsidiary. Even though the subsidiary acquired its plant assets prior to the date
of acquisition, from a consolidated perspective, the parent is acquiring the
subsidiary’s plant assets on the date of acquisition. Therefore, the historical cost of
these assets from a consolidated perspective is determined on the date of
acquisition.

11. Sales should be translated at the rate in effect on the date of the sales. If the sales
take place evenly throughout the year, the average rate for the year is used to
approximate the rate for each day of the year. If all the sales occurred on one day of
the year, the sales would be translated at the rate on the date of the sales.
12. Yes, under both translation methods, the subsidiary’s financial statements are
translated into and measured in the parent’s functional currency. Assume that the
functional currency of the reporting entity is the Canadian dollar. Under the FCT
method, the results from translation are basically the same as if the Canadian parent
carried out all of its foreign subsidiary's activities itself in Canadian dollars. Under
the PCT method, the results from translation are quite different than the FCT method
but are presented in the same currency as the FCT method.

13. The amount of the accumulated foreign exchange adjustments appearing in the
consolidated balance sheet is the parent's share of the amount appearing in the
subsidiary's translated balance sheet. If the subsidiary is less than 100% owned, this
will be a smaller amount. In addition, any exchange gain or loss resulting from the
translation of the acquisition differential is also reflected in the accumulated foreign
exchange adjustments in the consolidated balance sheet, and therefore this total
could be larger than that in the subsidiary's balance sheet.

The gains and losses arising from financial instruments used to hedge balance sheet
exposure are treated in a similar manner as the item the hedge is intended to cover. If
the PCT method