Pirouette Systems Inc. (PSI) Financial Statements: A Fun Audit to Perform!
Auditing financial statements is not always a fun task, but when it comes to Pirouette Systems Inc. (PSI), it can be quite enjoyable! PSI is a software company that specializes in dance and entertainment-related technology. Their financial statements are unique and exciting to audit, and you’ll have a blast reviewing their numbers.
So, grab your dancing shoes, and let’s dive into the world of PSI’s financial statements!
Get Ready to Pirouette with Joy while Auditing PSI’s Financial Statements!
PSI’s financial statements are like a dance—they’re full of energy and excitement! As a software company, PSI’s financial statements are quite different from those of traditional businesses, making them a fun and unique audit experience.
When reviewing PSI’s financial statements, you’ll notice that they have a significant amount of revenue generated from their software products. Their revenue streams are diversified, with the bulk of their revenue coming from their flagship product, DancePro, which is used by dance studios worldwide. They also have a new product in development, which will expand their revenue streams even further.
As you review PSI’s financial statements, you’ll feel like you’re dancing along with the music. The numbers are clear, organized, and easy to follow. You’ll be able to identify trends and patterns that will help you provide valuable insights to PSI’s management team.
Let’s Do a Finale, Shall We?
In conclusion, auditing PSI’s financial statements is a unique and enjoyable experience. Their software products make their revenue streams diversified, making the numbers exciting and easy to analyze. You’ll feel like you’re part of the dance as you review their financial statements and provide valuable insights to the management team.
So, put on your dancing shoes and get ready to perform the audit of a lifetime with Pirouette Systems Inc.!
You are performing the audit of the Pirouette Systems Inc. (PSI) financial statements for its year ended November 30, 20X0. PSI is a private company that sells and installs computer networks for businesses in the Toronto area. PSI’s has four shareholders who are all actively involved in the business. PSI’s audited financial statements are used mainly by its bank, which has made a large operating loan. The bank requires PSI to maintain a current ratio of at least 1.2 to 1, based on its year-end financial statements; otherwise the bank can require PSI to repay the loan in full immediately.
PSI’s accounting policy for recognizing revenue is to recognize 50% of the sales contract amount when the customer signs a sales contract and the balance when the network installation is complete. All sales are on account. During 20X0, PSI hired a new sales manager who has focused on making sales to larger companies. On November 30, 20X0, the sales manager reported to the PSI’s accountant that $250,000 should be recorded as sales revenue. This amount is 50% of the revenue on a large sale to a new customer. This is the largest single sale in PSI’s history. In January 20X1, while doing the audit you have discovered that the sales manager had been premature in reporting this contract as a sale, since the customer did not actually give the final approval of the contract purchase of the network until December 15, 20X0.
Before correcting this error, PSI’s draft financial statements show the following:
Net income before taxes of $6,200,000 Accounts receivable, net of allowance for bad debts, of $850,000, Total current assets of $1,100,000 and Total current liabilities of $860,000
Required:
a. Explain how the accounts in the PSI financial statements will be affected by this error. In your explanation identify the assertion(s) violated by this error.
b. Calculate the impact of this error on PSI’s current ratio
c. Would you consider this error material? Justify your response.
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