Name: Mahusay, Jeth A.

Date: December, 2020

Year: BSA-3 Instructor:Ms. Anna Mae Magbanua, CPA
Subject: Auditing and Assurance Principle

Module 3 Major Assessment

Lesson 6
Case:
Problem A. T. Bliss & Company (Bliss) sold investment contracts in the form of limited partnership
interests to the public. These securities sales should have been under a public registration filing with the
OSC, but they were not. Method Bliss salespeople contacted potential investors and sold many of them
limited partnership interests. The setup deal called for these limited partnerships to purchase solar hot
water heating systems for residential and commercial use from Bliss. All the partnerships entered into
arrangements to lease the equipment to Nationwide Corporation, which then rented the equipment to end
users. The limited partnerships were, in effect, financing conduits for obtaining investors’ money to pay for
Bliss’s equipment. The investors depended on Nationwide’s business success and ability to pay under the
lease terms for their return of capital and profit. Paper Trail Bliss published false and misleading financial
statements, which used a non-GAAP revenue recognition method and failed to disclose cost of goods sold.
Bliss overstated Nationwide’s record of equipment installation and failed to disclose that Nationwide had
little cash flow from end users (resulting from rent-free periods and other inducements). Bliss knew—and
failed to disclose to prospective investors—the fact that numerous previous investors had filed petitions
with the federal tax court to contest the disallowance by Revenue Canada (now the Canada Customs
and Revenue Agency) of all their tax credits and benefits claimed in connection with their
investments in Bliss’s tax sheltered equipment lease partnerships.
Not known, but all the money put up by the limited partnership investors was at risk largely not disclosed
to the investors.
Question:
1. What should be the audit objective?
Obtain proof to assess whether the techniques of capital fundraising conform with provincial
securities regulations and whether financial statements and other disclosures are not false.
2. What internal control needs to be employed by the company?
Management can employ experts, lawyers, underwriters and accountants who can decide whether
registration is necessary or not for securities and investment contract sales.
3. What should be the test of control procedures to be conducted?
Auditors should learn the corporate histories of senior management and securities-industry
experience. Research the minutes for permission of the fund-raising process from the board of directors.
Obtain and research the viewpoints of lawyers and underwriters on the legality of the techniques of fund-
raising. In any pre-sale clearance, ask about management's contact with the OSC.
4. What substantive testing procedures must be done?
Match customer orders to invoices billed, match collected funds to invoices billed and match
purchasing records to inventory on hand or sold.
Lesson 7
Make a concept map based on Lesson 7.

Evaluate operations of systems and

control

Submit Interim Management

Performing test of controls

Confirm operations of systems and

controls
Performing restricted.
Substantive procedures

Performing substantive
procedures Document relevant systems and
controls

Carry out final review Ascertain relevant systems and

controls

Submit final management Report to members Determine the audit approach