Emile Santiago Was Anxious to Start the Selection and Testing

question 8

Essay

Emile Santiago was anxious to start the selection and testing of controls at Dooley Real Estate Group, a company that specializin unique coastal propertinestled along the Nova Scotia coastline. A charming collection of coastal communitidots the rocks along the Bay of Fundy. Buzz Dooley brings years of talent and experience from being an executive in the marketing, technology and finance world to personally owning, renovating, aggregating and subdividing property. Along with investment analysis and extensive contract negotiation experience, clients are expertly represented in every transaction. Buzz imparts a sense of ease and joy to finding the perfect property for each client, making owning beach and coastal property a dream! Emile had two main "big picture" objectives: to prevent or detect misstatements in the financial statements. Emile was concerned about the following issues:
1) Revenue recognition was the trickiest as many of the transactions took place over longer than one year time frames. Partial payments and deposits are being made and have to be matched up with proper revenue recognition criteria.
2) The entertainment and promotional expenswere high and he was not sure how they compared to industry standards, although they appeared to be consistent with the Dooley Real Estate Group's profile and the deep pockets of its clientele. Required:
a) What are detective and preventive controls?
b) Can Emile use these preventive and detective controls to help him resolve the two issues he is concerned about?
c) Which factors will Emile have to consider when determining the "extent" of tests to be performed?
d) When would Emile perform substantive testing of revenue?

Comprehend the impact of stock transactions on financial statements.

Identify the accounts involved in stock issuance and subscription transactions.

Understand the equity section of the balance sheet and the presentation of common and preferred stock.

Understand and identify different types of equity financing transactions.

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Definitions:

Current Ratio

A financial metric comparing a company's current assets to its current liabilities to assess liquidity.

Short-Term Solvency

A company's ability to meet its short-term obligations, often assessed using liquidity ratios.

Closing Entries

Journal entries made at the end of an accounting period to transfer the balances from temporary accounts to permanent ones, preparing the books for the next period.

End-of-Period Spreadsheet

A tool, typically in spreadsheet format, used at the end of an accounting period to compile adjustments and prepare financial statements.