IMAX Corporation Auditing Standards

IMAX Corporation Auditing Standards

IMAX Corporation Auditing Standards

Introduction

Adjusting entries is additional accounting information recorded at the end of the accounting period to accurately match revenues with expenses and the main element in accrual-basis accounting. The accrual basis refers to revenues or expenses which are recognized in the current period irrespective of whether cash has been received. It is different from cash basis accounting, where revenues or expenses are only recognized when they involve cash receipts payments. In this paper we analyzed the IMAX Corporation Auditing Standards.

Analysis

According to Interpretation 101-3, “The CPA should be satisfied that the client will be able to meet all of these criteria and make an informed judgment on the results of the CPA's nonattest services. In assessing the competency of the client's designated employee, the CPA should be satisfied that the designated person understands the services to be performed sufficiently to oversee them. In cases where the client is unable or unwilling to assume these responsibilities (e.g., the client does not have an individual with the necessary competence to oversee the nonattest services provided, or is unwilling to perform these functions due to lack of time or desire), CPAs providing nonattest services would have their independence impaired.”

In the first two scenarios, the client's related accounting issues would probably be addressed in subsequent periods, and the proposed audit adjustments would probably not be repeated in the future. If proposed audit adjustments should be subjected to the same standards as nonattest services, then the third situation described above requires the auditor to consider whether independence is impaired and to address the issue every year when preparing material audit adjusting entries that are submitted to the client.

Consider the case of an IMAX that recognizes revenues on the percentage-of-completion basis. The auditor routinely calculates the amounts of realized and deferred revenues, prepares the appropriate adjusting entries each year, incorporates them into the financial statements, and submits the proposed entries. During the current audit, the auditor realizes that a major project that was 40% complete in the prior year was reported as 80% complete. The auditor's erroneous calculation in the prior period caused the financial statements to be materially misleading. Touche Ross auditors who discovered the $203,000 Audit adjusting entry during their 1985 second-quarter review took all appropriate steps to corroborate that entry. In particular, should they have immediately informed the audit partner, Helen Shepherd, of ...