PA1 asgn04

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Before you begin this assignment case, please click the Module 4 assignment link in the online course navigation pane for instructions on how to collaborate with your discussion group on the case analysis and response.

(100 minutes)
Carroway Clothing Limited
Carroway Clothing Limited (CCL) is a Canadian-controlled private corporation (CCPC) that was incorporated 10 years ago. CCL follows accounting standards for private enterprises (ASPE). It is owned by two brothers, Chip and Charles Carroway, who started the company after identifying an opportunity to design and manufacture clothing with innovative fabric. The Carroway brothers have run the business together and have an equal stake in its equity.

You are Rose Reddick, a recently graduated CGA assigned as team leader to complete the March 31, 20X3, financial statement audit of CCL. This is the second year that your firm has done CCL’s audit. The audit planning was completed in early March by Blake Mouton, another CGA in your firm, but he has recently announced he is resigning from the firm. Due to scheduling conflicts and an unusually busy season, he will be unable to continue with the remainder of the audit before he leaves, and you have been asked to take over leadership of the audit team. It is now late April, and the team under Blake’s supervision has completed about two-thirds of the audit field work. The audit is scheduled to be completed by May 15, and realizing that you have a limited amount of time to complete your work on this audit, you immediately begin your review of the work done to date and the available client background information. Client background

The Carroway brothers started manufacturing athletic wear, utilizing new techniques in fabric treatments to increase the durability of the fabric. CCL’s range of products includes clothing lines for women and men. The products are, primarily athletic wear, but three years ago they added a line of soil-resistant work clothing.

Tax losses have occurred in the early years, but sales have grown each year since the company was started. As sales increased, Chip hired a team of design specialists to create new clothing items with innovative features. This team was hired three years ago to begin the research and development required to bring new products to market. Chip also hired a marketing manager with a degree in fine arts to design the tags attached to each piece of clothing and develop the marketing programs. At the same time, specialized software was implemented to produce tags for the products. Because there are specific requirements for content and format of the tags, the production manager is the only individual with authorized access to the software.

In July 20X2, CCL signed a contract to produce a line of athletic wear for Sports Shop, a small chain of sporting goods stores. The line of athletic wear features the chain’s logo and trademark colours. CCL ships product to these stores using a company truck. The contract specifies that Sports Shop is to pay for each shipment within 30 days of signed receipt of delivery. Recently, Sports Shop has disputed some of the amounts owing to CCL, maintaining that there is no proof of receipt of the shipment. When Chip questioned the CCL driver, the driver admitted that when he was running late with his deliveries, he simply dropped the shipment at the store counter and did not wait for the store manager’s signature. Chip has not provided an allowance for these receivables since the delivery was made even though there is no signature. In fact, CCL has never recorded an allowance in any fiscal year and has not had any issues with uncollectible accounts.

PA1 Assignment 4

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The research and early stages of development of CCL’s products were financed by a combination of capital invested by the brothers, bank financing, and a government grant (see financial statements, Exhibit 1). Scientific Research and...
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