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CLOUD 9 Ltd.
An Audit Case Study
Updated Canadian Edition

Fiona CAMPBELL
Ernst & Young, Melbourne, Australia

Amanda WHITE
School of Accounting
University of Technology, Sydney, Australia

Valerie WARREN
Kwantlen Polytechnic University, Surrey, British Columbia

With contributions from

Luke BAXTER
EY, Toronto, Ontario

and

Brandy DUDAS
Douglas College, New Westminster, British Columbia
CFFIRS 09/29/2015 16:32:9 Page 2

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CTOC 09/29/2015 16:36:27 Page 3

CONTENTS

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Cloud 9 Ltd. company background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Financial information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

ASSIGNMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Assignment 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Understand the business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Assignment 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Calculate materiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Assignment 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Assertions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Assignment 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Documenting an accounting process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Assignment 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Identifying errors in the accounting process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Assignment 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Identifying controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Assignment 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Testing controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Assignment 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Determining the overall risk assessment and developing the substantive audit
program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Assignment 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Audit sampling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Assignment 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Substantive testing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Assignment 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Subsequent events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Assignment 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Assessing going concern and audit opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

APPENDICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Appendix 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Statement of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Statement of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Appendix 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Trial balance (December 31, 2014) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Draft Statement of Income (December 31, 2014) . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Appendix 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Contents iii
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Transcript of Meeting with Carla Johnson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Appendix 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Sales control testing support: Invoices and shipping documents . . . . . . . . . . . . . . 50
Appendix 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Cash control testing support: Daily bank reconciliations and EFT confirmations . 56
Appendix 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Purchase orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Receiving reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Supplier invoices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Extract from Cloud 9 purchases journal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

iv Contents
CINTRO 09/29/2015 16:34:21 Page 1

INTRODUCTION
This case study is designed to provide students with the opportunity to work through various
audit procedures that are performed during the planning and interim phases of a financial
statement audit. Typical client scenarios that are regularly observed in the profession are the
basis for this case study, and the aim is to expose students to the tasks they would typically
perform in their first year of auditing practice.
In this case study, students play the role of a graduate working for W&S Partners, a
Canadian accounting firm with offices located in each of the major Canadian cities. W&S
Partners has just been awarded the December 31, 2015, statutory audit work for Cloud 9 Ltd.
The audit team assigned to the client is: Partner, J.M. Wadley; Audit Manager, Sharon
Gallagher; Audit Senior, Josh Thomas; and IT Audit Manager, Mark Batten.
Prior year audits were conducted by Ellis & Associates. As part of the change of auditors
process, J.M. Wadley met with R.J. Ellis (Managing Partner, Ellis & Associates) to discuss the
acceptance of Cloud 9 Ltd. as a client and to inquire about access to Ellis & Associates’ working
papers. In the discussion, R.J. Ellis stated that there were no issues that W&S Partners should be
aware of before accepting the client or commencing the work.

Cloud 9 Ltd. company background

Founded in 1980 by Ron McLellan, the Toronto-based company was a manufacturer and
retailer of customized basketball shoes. In 1993, Cloud 9 Inc. (a publicly listed Canadian
company) purchased the original company from Ron McLellan and renamed it Cloud 9 Ltd. As
part of the sale agreement, Ron McLellan was appointed to the Cloud 9 Ltd. board of directors.
The parent company, Cloud 9 Inc., has wholly owned subsidiaries in the United States, the
United Kingdom (UK), Germany, China, and Brazil, and has built a reputation around the fact
that its shoes are comfortable and durable. The company promotes itself using its well-known
tagline “Our shoes are so comfortable, it’s like walking on Cloud 9.” Currently, Cloud 9 Ltd. is
primarily a wholesaler of athletic shoes to its main customers: David Jones, Myer, Foot Locker,
and Rebel Sports.
Cloud 9 Ltd. receives the majority of its inventory from the production plant in China, with
the remainder coming from the United States. All inventory is purchased on free on board (FOB)
shipping point, which means Cloud 9 Ltd. takes ownership of the products once the
international courier accepts the goods for delivery. The inventory is sent to the main warehouse
in Richmond, B.C., which is linked to retailers via an electronic inventory system. When retail
inventory levels get low, the company ensures deliveries are made using its own transport
trucks, thus ensuring control throughout the entire process.
A specific marketing campaign was initiated in 2015 to promote and build the Cloud 9 brand
in Canada. The Canadian company was granted permission from its parent entity to sponsor a
new basketball team, the Thompson Thunders, for the 2015 season. Under this sponsorship
agreement, Cloud 9 Ltd. is to provide all the athletic footwear for the team as well as having sole
merchandising rights. The agreement also includes general advertising rights at the stadium.
In a separate contractual arrangement, Cloud 9 Ltd. has signed Bodhi Parker, the captain of
the Thompson Thunders, as spokesman for the brand. This arrangement allows Cloud 9 Ltd. to
use Bodhi’s image to promote and build the brand in Canada.
In February 2015, Cloud 9 Ltd. launched its new product line, which included the
“Heavenly 456” walking shoe and the “Lightning 7” basketball shoe. Advertising campaigns

Introduction 1
CINTRO 09/29/2015 16:34:21 Page 2

and media coverage have been very successful and sales of the Heavenly 456 walking shoe
have steadily increased. For Cloud 9 Ltd., the Heavenly 456 now makes up 25 percent of total
sales. The Lightning 7 shoe was marketed in the basketball stadium during Thompson Thunders
games as well as heavily advertised using Bodhi Parker’s image. Due to a poor first season, sales
of the Lightning 7 were unimpressive and, as a result, Cloud 9 still has a large amount of
inventory in its warehouse.
To further establish the brand, the first Cloud 9 retail store was opened in Toronto, Ontario,
on June 1, 2015. The store operates on a just-in-time inventory system linked with the main
warehouse in Richmond, B.C. However, the management team reports that there have been a
few hiccups in determining ideal inventory quantities for the store to allow optimum availability
of merchandise to the customers. There have also been some thefts of merchandise from the
store and, in order to reduce inventory loss by theft, the company has installed closed-circuit
television cameras.

Personnel
Cloud 9 Ltd. has 52 full-time employees. In the retail store, the company employs part-time
staff, with casual employees enhancing staffing levels in the busier retail period.
To administer the company’s finances, Cloud 9 Ltd. employs Finance Director, David
Collier; Financial Controller, Carla Johnson; and Business Systems Manager, Justin Reeves.
These three employees are entitled to participate in the employee stock option plan and receive
stock options in Cloud 9 Inc. if revenue targets are met.

Financial information
Responding to pressure from its parent company, Cloud 9 Ltd. set a goal to increase its revenue
by 4 percent for the 2015 fiscal year. One of the critical success factors for the company to
achieve this 4-percent increase is to grow its share of the North American footwear market.
However, with the new store opening and the subsequent increase in costs, as well as the costs
related to the sponsorship deals, the management team is projecting a loss for the year.
In addition, to build customer loyalty and promote sales in the retail store, Cloud 9 Ltd.
introduced a loyalty program whereby customers earn one point for every $10 that they spend.
Customers can then redeem points on-line to receive coupons that can be exchanged for
merchandise in the store.
On October 1, 2014, the company took out an additional loan of $3 million with Ontario
Bank to help fund the store costs, and to purchase additional delivery trucks and vans. This loan
is repayable over five years. The company’s other debt relates to loans from one of Ron
McLellan’s other companies, which were issued between 1980 and 1993 when the original
company was a sole proprietorship. R.A. McLellan extended the repayment date as part of the
consideration for the sale.
All inventory is purchased in U.S. dollars. The company provides a 12-month warranty on
all footwear. Historical claims have been 2 percent of total sales.
Refer to Appendix 1 for the prior year’s statement of income and statement of financial position.

Required
In the following section, there are 12 assignments that are designed to be completed as concepts
are introduced throughout the auditing course.

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ASSIGNMENTS

Assignment 1
Understand the business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
In this first assignment, students research the footwear retail and wholesale industries to identify
potential audit risks.

Assignment 2
Calculate materiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
In this assignment, students calculate planning materiality and performance materiality.

Assignment 3
Assertions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
This assignment sees students identify the related account assertions to the risks identified in
assignment 1.

Assignment 4
Documenting an accounting process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Students will prepare a flowchart of an accounting process based on a transcript from a client
interview. After documenting the transaction flow, students should list additional questions they
would want to ask the client to complete their understanding of the process.

Assignment 5
Identifying errors in the accounting process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
For this assignment, students will need to review the accounting transaction flow from assignment 4 in
order to determine where errors could occur. They also will identify the assertion affected by the
potential error.

Assignment 6
Identifying controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Using and adding to the work sheet from assignment 5, students will now identify controls the client
has in place to stop errors occurring as well as the assertions covered by those controls.

Assignment 7
Testing controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
For this assignment, students will complete the tests of controls for the cash receipts process.

Assignment 8
Determining the overall risk assessment and developing the substantive
audit program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
In this assignment, students will link all their previous findings in order to determine the overall risk
assessment for specific account assertions. Based on the overall risk assessment, students will develop
the substantive audit program for selected accounts.

Assignment 9
Audit sampling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
This assignment requires students to identify the appropriate sampling method to use in different
circumstances.

Assignments 3
CASSIGNMENT 09/29/2015 16:28:31 Page 4

Assignment 10
Substantive testing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
For this assignment, students will be required to apply their knowledge of substantive testing to
accounts payable.

Assignment 11
Subsequent events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
In this assignment, students will apply the requirements of CAS 560 Subsequent Events to a number
of different scenarios that could arise during the audit.

Assignment 12
Assessing going concern and audit opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
In this assignment, the student will assess the ability of Cloud 9 to continue as a going concern and
then be required to determine the audit opinion based upon a variety of circumstances.

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ASSIGNMENT 1

Understand the business

Learning objective
As part of the planning process, the audit team needs to gain an understanding of Cloud 9
Ltd.’s structure and its business environment. By understanding the client’s business, the audit
team can identify potential risks that may have a significant effect on the financial statements.
This will assist the team in planning and performing the audit, including making inherent risk
assessments.
This assignment will help you learn to identify those potential risks of misstatement and
evaluate which of those risks are classified as significant risks (CAS 315.27).

Required
Josh Thomas, Audit Senior, has asked you to research the retail and wholesale footwear
industries and report back to the audit team. Your report will form part of the overall
understanding of Cloud 9 Ltd.’s structure and its environment.
You should concentrate your research on providing findings from those areas that have a
financial statement impact and are considered probable given Cloud 9 Ltd.’s operations. In
conducting your research, you should consider the following key market forces, as they relate
to Cloud 9 Ltd.’s operations.
For each area listed below, consider whether that factor could increase the risk of material
misstatement in Cloud 9’s financial statements.
List your potential risks in the table provided.

General and industry-specific economic trends and conditions

 What is the current condition of the economy?
 Is the business affected by developments in other countries, foreign currency fluctuations,
or other global forces?
 If the industry is labour-intensive, are there unusual or unique labour relations issues?
 How does the company’s growth and overall financial performance compare with the
industry, and what are the reasons for any significant differences?
 What is the volume and type of transactions in the business?
 Are the client’s operations centralized or decentralized?
 Is the client’s business cyclical or influenced by seasonal fluctuations in the market?
 What is the susceptibility to fraud/theft? (Is the product something that can easily be stolen
and has an active market?)

Competitive environment
 What products does the client sell, and have there been significant changes with respect to:
– major products or brands?
– selling strategies?
– sales/gross margin by product?
 Who are the client’s major competitors, and what share of the market does each hold?

Assignment 1 5
CASSGN1 09/29/2015 15:49:42 Page 6

 Is there significant differentiation between the client’s and competitors’ merchandise?

 What is the effect on the client of potential new entrants into the market? Are there any
significant barriers to entering the market?

Product information
 Is there a specific life cycle for the product?
 Is the product dependent on trends or styles?

Customer information
 Are there specific customers on whom the client is highly dependent?
 What is the overall profile of the client’s customers? Have there been significant
fluctuations in the client’s customer base?

Supplier information
 Who are the key suppliers?
 Are the materials subject to significant price movements or influenced by external market
forces?

Technological advances and the effect of the Internet

 How does the industry use technology?
 What technological trends are affecting the industry?

Laws and regulatory requirements

 Are the client’s operations affected significantly by local or foreign legislation?
 What new laws and regulations recently enacted (or pending) may have significant effects
on the company?

List your potential significant risks in the following table. Also name the account that would
potentially be misstated. Leave the “Assertion(s)” and the “Level of inherent risk” columns
blank until you complete assignment 3.

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W/P ref: A1–1

Prepared by: _____
Date prepared: _____

Cloud 9 Ltd.
December 31, 2015
Identification of significant risks
Potential risk— Assertion(s) Level of inherent risk
Account(s)
description (assignment 3) (assignment 3)

Discuss your responses with your supervisor (or teacher). Can you clearly distinguish between
a risk faced by the business and a significant risk?

Assignment 1 7
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ASSIGNMENT 2

Calculate materiality
Learning objective
One of the underlying principles in auditing is the concept of materiality. An auditor designs
procedures in order to identify and correct errors or irregularities that would have a material
impact on the financial statements. Such errors or irregularities are considered material if they
would impact the decision-making of the users of the financial statements. Materiality is used
in determining audit procedures, selecting samples, and evaluating differences from client
records to audit results. It is the maximum amount of misstatement, individually or in
aggregate, that can be accepted in the financial statements.
In selecting the base figure to be used to calculate materiality, an auditor should consider
the key driver of the business. They should ask themselves, “What are the end users (such as
shareholders and banks) of the financial statements going to be looking at?” For example, will
shareholders be interested in the net income that can be used to pay dividends and increase
share price?

Planning materiality
W&S Partners’ audit methodology dictates that one planning materiality (PM) amount is to be
used for the financial statements as a whole. Further, only one basis should be selected—a
blended approach or average should not be used. The basis selected is the one determined to be
the key driver of the business.
W&S Partners uses the following percentages as starting points for the various bases.
These starting points can be increased or decreased by taking into account qualitative client
factors, which could be:
 the nature of the client’s business and industry (such as rapid change, either through growth
or downsizing, or unstable environment)
 the fact that it is a publicly listed entity (or subsidiary of) subject to regulations
 the knowledge of or high risk of fraud.

Base Threshold (%)

Profit before tax 5.0

Revenues 0.5

Gross profit 2.0

Total assets 0.5

Equity 1.0

Typically, profit before tax is used; however, it cannot be used if the entity is reporting a
loss for the year or if profitability is not consistent.

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When calculating PM based on interim figures, it may be necessary to annualize the results.
This allows the auditor to properly plan the audit based on an approximate projected year-end
balance. Then, at year end, the figure is adjusted, if necessary, to reflect the actual results.

Note: Adjustments to the starting points are made by an experienced auditor using their
professional judgement. The aim is to set PM at a level that appropriately balances the
amount of testing, while still keeping the audit risk to an acceptable level.

Performance materiality
W&S Partners also dictates that performance materiality be determined for each audit
engagement. Performance materiality is an amount less than planning materiality that reduces
the likelihood that any uncorrected and undetected misstatements within a class of
transactions, account balances, or disclosures in aggregate exceed overall planning materiality.
W&S Partners’ policy is to use 70 percent of planning materiality to determine performance
materiality.

Required
Using the working paper provided (A2–1):
 Select the basis for planning materiality that you believe is most appropriate. Justify your
selection.
 Calculate the PM using the December 31, 2015, trial balance and draft Statement of Income
in Appendix 2.
 Based on your determination of PM, calculate and conclude on performance materiality.

Assignment 2 9
CASSGN2 10/29/2015 14:8:30 Page 10

W/P ref: A2–1

Prepared by: _____
Date prepared: _____

Cloud 9 Ltd.
December 31, 2015
Setting materiality
Users Financial statement area of most concern to the user

Base selected for planning materiality (PM): ______________________________________

Justification for selection:
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________

Calculation of PM
Trial balance amount:
Normalizing adjustments
(that is, non-recurring items)
Annualized (if required):
Benchmark applied
Calculated materiality:
Current Year
_______________________
_______________________
_______________________
_______________________
_______________________
Prior Year
_______________________
_______________________
_______________________
_______________________
_______________________

Conclusion: PM materiality is __________.

Performance materiality: 70% × _________.
Conclusion: Performance materiality is __________.

Discussion points
Consider how you will use the planning materiality in your audit. What factors might lead you
to increase or decrease the planning materiality amount? Are there qualitative factors that
could impact your materiality decision?

10 Cloud 9 Ltd. – An Audit Case Study

CASSGN3 09/29/2015 16:5:43 Page 11

ASSIGNMENT 3

Assertions
Learning objective
In this assignment, you will extend your knowledge gained in assignment 1 by taking the
significant risks you have already identified and then conducting further analysis on their
likelihood and materiality.
Risks identified from gaining an understanding of the client’s business are referred to as
inherent risks. These risks are considered in the audit-risk formula. The auditor needs to
identify which financial statement assertions may be affected by these inherent risks.
Identifying these risks will help determine the nature of the audit procedures to be performed.
Management implicitly or explicitly makes assertions regarding the recognition,
measurement, and presentation of the various elements of the financial statements and related
disclosures. Auditors use assertions for account balances to form a basis for the assessment of
risks of material misstatement. That is, assertions are used to identify the types of errors that
could occur in transactions that result in the account balances. Consequently, breaking down
the financial statement accounts into these assertions will direct the audit effort to those areas
of higher risk.
Assertions direct the audit, and audit procedures are designed so that they are responsive to
the assessed risks. Broadly, these assertions can be classified in the following categories:
 existence or occurrence
 completeness
 valuation and allocation, or accuracy
 rights and obligations
 cut-off
 classification
 presentation, disclosure, and understandability

Required
Using the risks identified in assignment 1 on working paper A1–1, complete the following
information in the relevant columns of the working paper.
 Identify the associated financial account (if you haven’t done so already) and assertions that
would be affected.
 Give an assessment of “high,” “medium,” or “low” in relation to the likelihood and
materiality of the risk occurring.
A risk should be classified as “high” if it is highly likely to be present and material. A risk
should be classified as “medium” if it may be present and material. Risks should be classified
as “low” if they are unlikely to be present and/or not material.

Discussion points
 Did you have any significant risks that could not be linked to an account in the financial
statements and an assertion? Is it still a significant risk?
 Given your analysis—for this client—is the overall level of inherent risk “low,” “medium,”
or “high”?

Assignment 3 11
CASSGN4 09/29/2015 16:9:11 Page 12

ASSIGNMENT 4

Documenting an accounting process

Learning objective
In order to identify when, where, and how potential misstatements can occur, an auditor must
obtain an understanding of the entity’s internal control structure. This understanding covers the
internal controls at the entity level, as well as at the transaction level. Entity-level controls
include areas such as management integrity, policies and procedures, and monitoring of
control activities. Transaction-level controls are those performed during the processing of
accounting transactions.
By documenting the flow of transactions in an accounting process, the auditor understands
the stages where errors can occur. The entire process is reviewed, from the initiation of the
transaction through to the recording in the general ledger (G/L). Often several accounting
processes can be linked together into one seamless flow of transactions (see figure 4.1).

Figure 4.1 Flow of transactions—order to payment

Required
Audit Manager Sharon Gallagher and Audit Senior Josh Thomas previously met with the
Cloud 9 Ltd. Finance Director, David Collier, to gain an understanding of the internal controls
at the entity level. Based on their interview, they have assessed those controls as being
effective. Therefore, at a high level, the company demonstrates an environment where
potential misstatements are prevented or detected.
You have been assigned the task of documenting the understanding of the process
for recording sales, accounts receivable, and cash receipts for wholesale customers.
In your absence, Josh met with the Cloud 9 Ltd. Financial Controller, Carla Johnson,
and received permission to tape the interview, which is provided as a transcript (see
Appendix 3).

12 Cloud 9 Ltd. – An Audit Case Study

CASSGN4 09/29/2015 16:9:11 Page 13

Using this interview transcript, you are now asked to:

 Prepare a flowchart or narrative documenting your understanding of the sales to cash
receipts process for wholesale sales. Document your understanding in working paper A4–1
and A4–2 (if needed) on pages 14 and 15.
 Identify any follow-up questions you would like to ask the client if aspects of the process
are not adequately explained. Also identify any weaknesses in the internal controls over the
sales and cash receipts. Document these in working paper A4–3 on page 16.
 For the follow-up points and control weaknesses, describe any potential misstatements that
could occur in the financial statements in A4–3.

Note: The follow-up questions could be addressed to Carla Johnson or any other employee you
deem appropriate.

Assignment 4 13
CASSGN4 09/29/2015 16:9:11 Page 14

W/P ref: A4–1

Prepared by: _____
Date prepared: _____

Cloud 9 Ltd.
December 31, 2015
Sales and cash receipts process—documenting understanding of internal controls

Purpose: To document the sales to cash receipts process for wholesale sales

14 Cloud 9 Ltd. – An Audit Case Study

CASSGN4 09/29/2015 16:9:11 Page 15

W/P ref: A4–2

Prepared by: _____
Date prepared: _____

Cloud 9 Ltd.
December 31, 2015
Sales and cash receipts process—documenting understanding of internal controls

Assignment 4 15
CASSGN4 09/29/2015 16:9:12 Page 16

In the table below, list any parts of the sales and cash receipts process that is unclear from the
interview or where you believe a weakness may be present. Also describe the potential
misstatements that may occur as a result of the weakness.

W/P ref: A4–3

Prepared by: _____
Date prepared: _____

Cloud 9 Ltd.
December 31, 2015
Sales and cash receipts process—documenting internal control weaknesses
Follow-up point/Control weakness Potential misstatement

Discussion points
Begin to consider whether any of the control weaknesses identified might be mitigated by
another control within Cloud 9’s business processes. What would you do if you found a
weakness that did have a mitigating control? Would it affect your assessment of the control
system’s ability to prevent or detect material misstatements?

16 Cloud 9 Ltd. – An Audit Case Study

CASSGN5 09/29/2015 16:16:31 Page 17

ASSIGNMENT 5

Identifying errors in the accounting process

Learning objective
An important aspect of determining the risk of material misstatement within an accounting
process involves understanding the points at which errors or fraud can occur. These can often
be the points at which information is changed, there is significant human involvement, or
access to systems is not restricted. In essence, it is where something in the process can go
wrong. The auditor should concentrate on those points that have a financial statement impact.
Once the types of potential misstatements are understood, the auditor should consider the
magnitude and likelihood of the misstatement in the financial statements. This will help narrow
the risk assessment and determine what audit procedures should be performed. In addition, the
auditor considers how errors in each financial statement assertion might occur.

Required
Based on your knowledge of the wholesale sales to cash receipts process from assignment 4
working papers A4–1 and A4–2:
 identify the potential misstatements that could occur in each part of the sales and cash
receipts process; for example, receiving orders, obtaining inventory, and processing
payments.
 for those misstatements, identify the financial statement assertions that are affected.
Document your findings in the first three columns of working paper A5–1. You will
complete the fourth column of the working paper in assignment 6.

Assignment 5 17
CASSGN5 09/29/2015 16:16:31 Page 18

W/P ref: A5–1

Prepared by: _____
Date prepared: _____
Cloud 9 Ltd.
December 31, 2015
Identifying errors in the accounting process
Potential Transaction-level internal
Significant process Assertions
misstatements controls (assignment 6)

18 Cloud 9 Ltd. – An Audit Case Study

CASSGN6 09/29/2015 16:18:33 Page 19

ASSIGNMENT 6

Identifying controls
Learning objective
To mitigate the risk of misstatement, companies should establish a strong control environment
or tone at the top. Internal controls at the transaction level should be designed to prevent or
detect the material misstatements that could occur within the flow of transactions. Auditors are
required to obtain an understanding of these risks and controls.

Required
Use the working paper from assignment 5 (A5–1) to complete this assignment. In column four,
include the transaction-level internal controls that Cloud 9 Ltd. has implemented to prevent
and/or detect potential errors (based on the understanding of internal controls you gained in
assignment 4).

Assignment 6 19
Another random document with
no related content on Scribd:
The Project Gutenberg eBook of The coat without
a seam, and other poems
 This ebook is for the use of anyone anywhere in the United
States and most other parts of the world at no cost and with
almost no restrictions whatsoever. You may copy it, give it away
or re-use it under the terms of the Project Gutenberg License
included with this ebook or online at www.gutenberg.org. If you
are not located in the United States, you will have to check the
laws of the country where you are located before using this
eBook.

Title: The coat without a seam, and other poems

Author: Helen Gray Cone

Release date: August 28, 2023 [eBook #71508]

Language: English

Original publication: New York: E. P. Dutton & Company, 1919

Credits: The Online Distributed Proofreading Team at

https://www.pgdp.net (This file was produced from
images generously made available by The Internet
Archive)

*** START OF THE PROJECT GUTENBERG EBOOK THE COAT

WITHOUT A SEAM, AND OTHER POEMS ***
 THE
COAT WITHOUT A SEAM And
Other Poems
 BY THE
SAME
AUTHOR

A CHANT OF LOVE FOR

ENGLAND AND OTHER POEMS

A volume of miscellaneous
poems containing as its title poem
a reply to the German “Hymn of
Hate.”
“Firmly and finely fashioned,
and unaffectedly sincere.”—The
New York Times.
“Miss Cone’s verse shows a
delicacy of imagination which is
deserving of high praise.”—The
Outlook.
$1.50 net

NEW YORK
E. P.
DUTTON &
COMPANY
681 Fifth
Avenue
 THE
COAT WITHOUT A SEAM
And Other Poems

BY
HELEN GRAY CONE
Author of “A Chant of Love for England,
and Other Poems”

NEW YORK
E. P. DUTTON & COMPANY
681 Fifth Avenue
 Copyright 1919, by
E. P. DUTTON & COMPANY

All Rights Reserved

Printed in the United States of America

Grateful acknowledgment is made, for permission to reprint some

of the poems in this book, to Scribner’s Magazine, The Outlook, The
Sonnet, The New York Evening Post, The New York Times, The
Boston Evening Transcript, and The Association Monthly.
 CONTENTS
PAGE
The Coat Without a Seam 1
Sonnets of the Great Peace 9
Moods of War:
The Sword 21
Aligned 23
Earth-brown Armies 26
The Imperative 27
War-Sacrifice 29
The Youth and War 31
Mothers of Soldiers 33
A Reprisal 35
On the Death of an Untried Soldier 39
The Airman 41
To Francis Ledwidge 42
The Way of the White Souls 44
Respite 47
Happy Country 49
To France 51
To Belgium 53
The Creed of an American 55
The Ultimate Victory 58
Roosevelt, 1919 60
The Quiet Days:
Old Burying Hill 65
Heartbreak Road 66
Romance 67
Faith 69
Intimations 70
On the Singing of “Gaudeamus Igitur” 72
The Countersign 74
Failure Triumphant 75
The Spark 77
Foxgloves 79
The Christmas Bagpipes 80
When Roses Go Down to the Sea 82
Ritual for Summer Dead 85
Red October 87
The Singer Chooses the Songs of the 89
Wind
The Gleam Travels 91
The Gray Victory 93
Flags and the Sky 96
THE COAT WITHOUT A
SEAM

THE COAT WITHOUT A SEAM

There was a web, ere Time began,

Woven on the loom of God,
Woven for the need of Man.
Through the web two colors ran,
Blue that is the sky of God,
Red that is the blood of Man.
The web was woven, the web was one:
The stars sang when the work was done.

God had willed it to be worn—

Fit garment for the heavenly feast—
By Man, that was to be His son.
Only God could dream that dream!
When Time began, and Man was born,
He clothed himself in the skin of the beast,
And under it beat the heart of the beast.
Not till Man be born God’s son
Shall he wear the Coat without a Seam!

(Ah, the dream, the wondrous dream

Of a World without a Seam,
Man being one, as God is one,
Brother’s brother and Father’s son,
All earth, all Heaven, without a seam!)
The Roman strode through field and flood,
Blind as Fate with battle-blood;
Victory glittered in his hand;
And when he laid him down at night
Under the stars of some strange land,
Weary of the march or fight,
He wrapped his heart in the vast dream
Of a World without a Seam;
Yet the dream was not divine;
The fierce heart beat like marching feet:
“The World is one—the World is mine!”
That was the dream of states foregone,
Of Babylon, of Macedon;
Sleeked by whatsoever art,
It is the dream of the beast’s heart.
Massive-treading Rome paced on
(As Macedon, as Babylon,)
Into the dusk of states foregone:
She left her mantle still astream
Along the wind, her purple dream—
Not the Coat without a Seam!
The eyes of emperors see it float,
They hail it for the sacred Coat:
Men follow on through field and flood,
Blind as Fate with battle-blood.
See the sworded sceptred train,
Out of the dusk they all advance:
Iron-crownéd Charlemagne,
Barbarossa flaming past,
Sombre majesties of Spain,
Pomps of old monarchic France—
Supreme Napoleon last,
Sweeping his ermine-bordered robe
And gripping fast the globe.
(Nay, who is this that follows him,
A vision helmeted and grim,
A countenance pallid and aghast?)
—Into the dusk they all are gone,
As Babylon, as Macedon.
Not till Man shall dream God’s dream
Shall he wear the Coat without a Seam!

(Ah, the dream, the wondrous dream

Of a World without a Seam!
Man being one, as God is one,
Brother’s brother and Father’s son,
All earth, all Heaven without a seam!)

“What shall we do, we simple folk

Who walk as cattle in the yoke?
Surely the vision of this Coat—
Fit garment for the heavenly feast—
Is for prophet and for priest,
Not for men of little note!
Surely the quest to find this Coat—
Woven of empyrean thread
Heaven-blue and heart-red—
This is for Kings and Chancellors,
Parliaments and Emperors,
Not for men of little note!”
—Nay, this do ye every one:
All your days to dream God’s dream,
That Man, who is to be His son,
Shall wear the Coat without a Seam!
SONNETS OF THE GREAT PEACE

“Incertainties now crown themselves assured

And peace proclaims olives of endless age.”

—Shakespeare’s Sonnet CVII.

What boon is this, this fresh and crystal thing,

Perfect as snow, dropped from the deep of the sky—
This healing, shed as from the soft swift wing
Of some great mystical bird low-sweeping by?
This music suddenly thrilling through the mind
Angelic unimagined ecstasy,
As when warm fingers of the Spring unbind
Young brooks that laugh and leap, at last being free?
By what white magic, what unfathomed art,
Was this best gift secretly perfected,
This amulet, that laid against the heart
Melts all the icy weight that held it dead?
This is that Peace we had and did not know;
This is that Peace we lost—how long ago!

II

Shall we not now work wonders with this charm,

To the vext heart of the world benignly laid,
Fending all future golden lads from harm,
 And all gray mothers, and every starry maid?
Yea, all kind beasts that ask with patient eyes
Our wisdom to forestall bewildering pain:
Yea, all kind fields, trees rippling to the skies,
Brown earth sweet-breathing under natural rain.
Shall we not now, being freed, being healed of Peace,
Retrieve all days to be from blot and blight,
Give to the chained goodwill of Man release,
And a new deed of manumission write
On a new page, made by this marvellous boon
Pure as unfooted snow under the moon?

III

How did we cast away our careless days

In that old time before we knew their worth,
Wandering with chance, even as a child that strays,
Spilling their unprized splendors on the earth!
But now we have eaten War as daily bread,
Borne it upon our souls a weary weight,
Made it the pillow to a restless head,
Breathed it as air, sick with the reek of hate:
And Peace is come a stranger, and grave-eyed,
Like a young maid turned woman; on our knees
We do her reverence as a spirit enskyed;
How should we spend such shining days as these?
They have cost great pain: needs must we hold them dear,
Counting our jewels with a heavenly fear.

IV

Ghosts of great flags that billowed in the sun

With glorious colors above the crowded street,
 Lifting our hearts to know the rent world one,
Teaching the march of Man to hurrying feet,
Shall ye not haunt those skyward spaces still
With memory of your sun-illumined streaming,
Bright brother-angels heralding goodwill,
Beckoners of sordid spirits to noble dreaming?
Or shall your many beauteous blazonries
Fade out from the dulled sense and be forgot,
And intimations so august as these
Lapse into silence even as they were not,
Comrades turn rivals, and heart-fast allies
Weavers of schemes, peering with insect eyes?

What shame were this to those who lie asleep

Under the scarlet poppies, having bought
A clean new world with blood! Shall we not keep
Faith with our dead, and give them what they sought?
Is not a world the measure of our debt
To those whose young lives sadly we inherit,
Living them out, making them fruitful yet?
What lesser meed fits their transcendent merit?
The future was their sacrificial gift,
And joy unborn, and beauty uncreate,
And little children that should racing lift
Their torch of life, laughing at death and fate:
Shall we not make, mindful of all they gave,
A star of this old earth which is their grave?
MOODS OF WAR
 THE SWORD

One of the seventy had a sword

The day that Christ was crucified:
He followed where they led his Lord,
The man that could not stand aside.

When that first hammer-stroke rang loud,

And left and right the rabble swayed,
He flashed from out the staring crowd,
He died upon the Roman blade.

His fruitless deed, his noteless name,

By careless Rome were never told.
Now shall we give him praise or blame?
Account him base, acclaim him bold?

Was he the traitor to his Lord,

Deeper than Peter that denied,
The loving soul that took the sword,
The man that would not stand aside?

Or did the glorious company

Of Michael’s sworded seraphim
With chivalrous high courtesy
Rise up to make a place for him?
 ALIGNED

Why do you leap in the wind so wild,

O Star-Flag, O Sky-Flag?
And why do you ripple as if you smiled,
Flag of my heart’s delight?
“I laugh because I am loosed at last,
Free of the cords that bound me fast
Mute as a mummy, furled on the mast,
Far from the beckoning fight!

“I joy because I am aligned—

The Star-Flag, the Sky-Flag—
With these the noblest of my kind,
Flags of the soul’s desire!
And where the blended Crosses blaze,
And where the Tricolor lifts and sways
To the marching pulse of the Marseillaise,
I may be tried in the fire!”

Yea, not for gold and not for ease,

My Star-Flag, my Sky-Flag,
The Fathers launched you on the breeze,
Flag of man’s best emprise!
Yea, not for power and not for greed,
But to fly forever, follow or lead,
For the world’s hope and the world’s need,
Flower of all seas and all skies!
And better you were a riddled rag,
My Star-Flag, my Sky-Flag,
The faded ghost of a fighting-flag,
Shredded, and scorched with flame,
Than that you should now be satisfied
Over splendid cities and waters wide
To flutter and float in an idle pride,
To flaunt in a silken shame!

Then well may you leap in the wind so wild,

O Star-Flag, O Sky-Flag!
And well may you ripple as if you smiled,
Flag of our hearts’ delight!
We joy because you are aligned
With these the noblest of your kind:
We are yours and theirs with a single mind—
Let us on to the beckoning fight!