Cybernetronics Inc. (Cyber) is a Canadian-owned public companywhich designs and manufactures communications and control systems.The company's year end is May 31. It is now June 2018.

You, CPA, are the manager for the audit of Cyber and yesterdayhad met with the treasurer to discuss the year-end audit. Thepartner responsible for this client has asked you to prepare areport for the client which discusses important financialaccounting issues and a memo to him regarding the audit issues youbelieve are important.

In April 2018, Cyber introduced a price protection policy forits customers to stimulate sales. Cyber promised customers that ifit reduced prices after the customer made its purchase Cyber wouldreduce the customer's liability accordingly or refund theappropriate amount. On June 14, 2018, Cyber reduced its sellingprices by 15%. Sales affected by the price protection policy as atMay 31, 2018 were recognized in the amount of $2.4 million.

In May 2018, Cyber entered into an arrangement with a realestate company whereby Cyber provided robotic cleaning machines inexchange for free rent at its head office location. The cost of themachines delivered to the real estate company was $900,000 andwould have a selling price of $1,500,000. Cyber is not required topay rent for twelve months commencing June 1, 2018. This representsa savings in lease costs of $1,200,000 to Cyber. This transactionallowed Cyber to reduce its inventory of these machines whichmanagement felt was too high. Cyber's draft year-end financialstatements do not reflect this transaction.

Senior management of Cyber is concerned about the newrequirement to disclose management compensation figures. They wantto avoid any criticism that their total compensation is notwarranted based on Cyber's financial performance.

*Identify the accounting and audit issues*