Auditing

QUESTION 3 Bella's Bakery (BB) is a privately owned bakery located in Charlottetown, PEI. Bella and her brother, John, opened the bakery in 2018. John was eager to help Bella bring her dream to life after he got his Marketing degree. The bakery is open year-round but is especially busy in the summer when more tourists come into the shop, and more wedding cake orders are placed. John tells you BB pretty much sticks to the same style of cake with the same price because it is too labour intensive to get into a lot of varieties. He tracks how many of each type of product he sells to carefully evaluate margins so he can make decisions about which products are profitable. Right now, BB mostly sells cookies, cakes and bread. John used to deal with the business side of the Bakery, including the bookkeeping, but now that the Bakery has grown so much, Bella has decided to hire a CPA to help. He wanted to hire you, but you politely declined as you love your audit job at Taylor LLP. You are now assigned to the BB audit for the year ended December 31, 2021 You are provided with notes from John regarding a new lease agreement: We entered into a 5-year lease agreement, which began Jan.1,2021 for a van so that we can also offer a delivery service. The annual lease payments are $12,500, due at the beginning of the year. The van has a fair value of $85,000. There is no bargain renewal option. The economic life of the asset is 6 years. The implicit interest rate is 6%. The guaranteed residual value is $25,000. Our new CPA told us she feels very confident she recorded the lease correctly since she had to review the new IFRS 16 rules in detail to study for the CFE she wrote before we hired her. Required: 1. Provide 3 substantive audit procedures (tests of details) that address three different assertions related to the lease. Remember to use the what/why/how format. 2. Provide one analytical procedure that could be used in the BB audit. Explain what the procedure tells you and what assertion it helps to prove