Cale Manufacturers - Ufe Case

Cale Manufacturers Limited (CML) is a wholly owned subsidiary of IS Shaver Corp. (ISC), a private US based corporation. CML manufactures a variety of items at four different locations in Canada: copper and steel cable, nails, screws, nuts and bolts, and other steel goods. CML has an October year end. Sales in the most recent year were $160 million. CML is audited by Brabant & Maher, the Canadian affiliate of ISC’s auditor.

In response to various issues identified in Brabant & Maher’s management letter to ISC following the

1996 audit, ISC’s chief executive officer ordered that an internal audit department be set up in CML by the end of June, 1997. You, CA, have worked for CML for two years.

On February 19, 1997, you became manager of the new internal audit department of CML, reporting to the company’s president, a daughter of ISC’s chief executive officer. You also report to the director of internal audit of ISC, who oversees the internal audit function worldwide. One of your responsibilities is to manage CML’s relationship with Brabant & Maher. Your priorities are 1) to review the previous year’s external audit approach to evaluate the efficiency and adequacy of the audit, and 2) to address other issues CML’s controller and staff have raised.

It is now February 28, 1997. The director of internal audit of ISC has requested a memo by e-mail in two days that deals with these priorities.

CML’s controller has told you that one of the comments in the auditors’ management letter was that the bank reconciliations should be formally reviewed. The Controller has provided you with copies of the 1996 year-end bank reconciliations of the general operating, imprest payroll, and investment bank accounts to assist in your review of the bank reconciliation information (Exhibit I). Exhibit II contains notes from discussions with the controller and staff, including some observations about Brabant & Maher’s audit approach in 1996.

Required:

Prepare...