Overlook Video Stores Inc

5117 words 21 pages
Overlook Video Stores Inc. (OVS) To: Ms. Alice Hartford, Partner
From: CA, Audit Senior
Re: Planning for the year end 2009 of OVS and requested control deficiency information Engagement Overview
The purpose of this memo is to document the planning of the financial statement audit st engagement of our client Overlook Video Stores Inc. (OVS) for the year ended December 31
2009. OVS has been our client since its inception in 1998. This year’s audit will commence
January, 2010, though certain procedures have already taken place to ensure our opinion can be given promptly, as requested by OVS’s bank.
OVS is a privately held company, headquartered in Toronto and operating in the DVD rental and retail industry. OVS has over
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IR is increased due to Mr. Ziegler’s interest in selling his portion of shares to a Western
Canadian company in the next couple of years. As such, there is a pervasive RMM due to management’s bias to overstate profit (overstate revenues and understate expenses) to garner a more favourable purchase price. This RMM is pervasive insofar as it potentially affects a number of profit­related accounts at the financial statement level. Importantly, a heightened level of professional skepticism will be required throughout this engagement; especially when developing audit procedures.

IR is increased by the implementation of the new Movies By Mail (MBM) Program. Revenue recognition with respect to this program is more complex than traditional in­store sales and
OVS’s management’s lack of familiarity with online sales and with their appropriate accounting treatment increases the RMM in the revenue and A/R accounts. Moreover, development and use of a web site further complicates the accounting, thereby further increasing the RMM.
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IR is increased by the implementation of the new RentPoints (RP) Program. Management’s

lack of experience accounting for such loyalty rewards programs introduces a RMM, particularly in the liabilities and expense accounts.

IR is increased by the failure of OVS’s new website software to accurately keep track of the customer database (membership info, purchase and payment


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