Audit Techniques, Audit Preparation and Audit Efficiencies for Small and

M di E t i (SME )Medium Enterprises (SMEs)

March 26 2014March 26, 2014

Although the presentation and relatedgmaterials have been carefullyprepared, neither the presentationauthors, firm, nor any personsinvolved in the preparation and/orinstruction of the materials acceptsany legal responsibility for its contentsor for any consequences arising fromits use.

Public Accounting Firms- audit pricing audit teams and audit timingpricing, audit teams and audit timing

Audit techniques for SME Audit techniques for SME

Audit schedules and working paper Audit schedules and working paper preparation

Tax update

Audit Pricing Audit Teams andAudit Pricing, Audit Teams and Audit Timing

Audit quotes and invoices are typically based on the # of hrs x charge outbased on the # of hrs x charge out rate

The more prepared you are for your audit engagement the less time it g gshould take for the audit to be completed and overall less costs for

h lyou the client

Engagement partner – person in charge f dof audit

E t t i ll dEngagement manager – typically does the detail review of the audit, will be on site periodicallysite periodically

Audit staff members – will varyAudit staff members will vary depending on size but can consist of junior to senior staff members

Tax Partner – complete the tax review of your T2, Registered Charity Return, Not-For-Profit Information Return, etc.

Other members –◦ a second partner to review the Financial Statementsa second partner to review the Financial Statements

and Financial Statement disclosures◦ a second partner to review the high risk parts of

th filthe file◦ advisory partner

Audit planning - completed prior to start of auditof audit

Fieldwork – the time the audit team is at h li ’ i d i dithe client’s premises conducting audit

procedures and tests

File clean up and completion at Public Accounting Firm’s office

Various reviews of the audit – Quality Control ProcessControl Process

What is Materiality?

Term used to reflect a dollar amount, which ld i fl h i d i i fwould influence the economic decisions of

users of the financial statements

Types of materiality: Overall materiality Overall materiality Performance materiality Specific materiality Specific materiality

Determined in the planning stage but must be monitored to determine if it is still relevant throughout the audit processthroughout the audit process.

Based on professional judgement A percentage is often applied to choose a A percentage is often applied to choose a

benchmark.

General benchmarks:General benchmarks:

Profit-orientedProfit-oriented◦ 5% of Income before tax from continuing operations ◦ ½ to 2% of gross revenues

Not-for-profit ½ t 2% f t t l◦ ½ to 2% of total revenue or expenses

Risk of Material Misstatement (RMM)Risk of Material Misstatement (RMM)

The risk that the financial statements are materially misstated prior to the start of any audit work.

Two components of RMM(1) I h t Ri k(1) Inherent Risk(2) Control Risk

Auditor is not looking for fraud, but must maintain professional skepticism throughout the audit, recognizing the possibility that a material misstatement due to fraud couldmaterial misstatement due to fraud could exist.

The primary responsibility for the prevention The primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the entity and management.

The way to discover fraudulent activity is to identify warning signs (such as patterns, oddities and exceptions) and then follow the trailtrail.

An immaterial amount (such as an inflated expense claim) should not be ignored. It mayexpense claim) should not be ignored. It may well be indicative of a larger issue.

There are two main types of audit procedures:

Substantive procedure ◦ (i) Tests of details (of classes of transactions◦ (i) Tests of details (of classes of transactions,

account balances, and disclosures); and◦ (ii) Substantive analytical procedures.

Test of controls An audit procedure designed to evaluate theAn audit procedure designed to evaluate the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the assertion levelmaterial misstatements at the assertion level.

The application of audit procedures to lessthan 100% of items within a population ofaudit relevance such that all sampling unitsaudit relevance such that all sampling unitshave a chance of selection in order to providethe auditor with a reasonable basis on whichthe auditor with a reasonable basis on whichto draw conclusions about the entirepopulation.

The reliability of audit evidence is influencedThe reliability of audit evidence is influencedby its source, its nature and the individualcircumstances under which it is obtained.c cu sta ces u de c t s obta edObtaining a written confirmation directly froman independent source can often be more

l bl h d d ll breliable than evidence generated internally bythe entity.

Common uses of confirmations:Common uses of confirmations:

Accounts receivable balances. Accounts receivable balances. Bank balances or debt. Loans and advances receivable. Inventory held by third parties. Interest rates. Estimates (litigation settlements, etc.). Terms of agreements, contracts.

Things to consider and doThings to consider and do

Communicate with your auditors – contact them if they have not contacted you

f f Before the start of the audit communicate any changes or significant events during the year

Request a list of schedules that you can Request a list of schedules that you can prepare to assist with the audit

Ask for the materiality level that the auditorsAsk for the materiality level that the auditors are using

If the auditors will be using sampling ask for the list in advance of the audit so you can

i f tiprepare information Trial balance - a final trial balance should be

provided to your auditor;provided to your auditor;If this is not possible and you discover adjustments

needed afterwards post entries and provide to your auditor.

Auditor’s responsibility

Obtain an understanding of internal controls

Components of internal controls

Control environment Risk assessment Information systems Information systems Control activities Monitoring

What you can do to help What you can do to help...

Prepare/update systems/process documentationp / p y /p

How auditors use the documentation Identify controls Identify controls Evaluate design Evidence implementation

Types of controls

P i ( ) Preventive (stronger)

Detective (weaker)( )

B k/C h Bank/Cash

Bank reconciliations Bank reconciliations Agree to the G.L. Review old/unusual items and adjust if necessary

Cut off Transactions recorded in the correct period Provide subsequent G.L. detail

Accounts Receivable

Confirmations Not necessary but is strong evidence

Types of confirmations Positive N ti Negative

Other A/R working papers Aged summary agreed to the G L Aged summary agreed to the G.L. Allowance for doubtful accounts – support Analytical (ratios) Translation of foreign balances Translation of foreign balances

Accounts Payable Accounts Payable

Confirmations Again, not necessary but strong evidence

Other A/P working papers Other A/P working papers Aged summary agreed to the G.L. Segregate related party balances Analytical (ratios) Translation of foreign balances

Government payables

Sales tax reasonability

Agree G.L. balance to subsequent payment/receipt Agree G.L. balance to subsequent payment/receipt

Inventory

S f i i f iSummary of composition of inventoryMemo outlining inventory count procedures, count

date, costing methods, gObsolete/slow moving inventoryInventory in transit/consignment

C i lCapital assets

Capitalization policyCapitalization policyContinuity schedule and amortization calculationAdditions of fixed assets with backupAmortization rates are in accordance with FSReview of R&M and office accountsIndicate if there were fixed assets disposed idleIndicate if there were fixed assets disposed, idle,

held for resale or in progress

Income Tax

Copies of all notice of assessments/reassessmentsI t l tInstalment summary Detailed general ledger printoutsIdentify Schedule 1 add-backsyMeals & entertainment – 50% deductibleLife insuranceNon deductible interestNon-deductible interestNon-deductible club dues and feesCar leases ($800+HST)

Long-term debtg

Consider financing vs. capital vs. operating leases

Provide a loan amortization table Agree to the trial balance accounts (closing principal,

interest expense)L t t ti tl l ifi dLong-term vs. current portion correctly classified

Provide a copy of the loan documentTerms agree to the loan amortization tableTerms agree to the loan amortization tableCovenants and loan security is disclosed – are you

offside?Auditor may request a bank/creditor confirmationAuditor may request a bank/creditor confirmation

Related party balances and transactions

R ili ti f l t d tit tReconciliations of related entity accountsCalculations supporting amounts of related party

transactionsSupport for inter fund charges/allocationsSupport for inter-fund charges/allocationsSigned confirmation letters from the related party

Marketable securitiesMarketable securities

Accounting policy

Schedules agreed to the trial balance

Long-term vs current classificationLong term vs. current classification

Segregated income by typeEligible dividends vs. interestEligible dividends vs. interestRealized vs. unrealized gains

Cut-off – accrued interest and dividends

Retained earnings / Net assets Retained earnings / Net assets

Does the “Opening” R.E./N.A. Agree to last year’s p g / g yissued financial statements?

If not:If not:Have all of auditor’s entries been posted?Does the Trial Balance provided to the auditor last year

agree to the pre-adjustment Trial Balance per system?agree to the pre adjustment Trial Balance per system?Were any adjustments posted directly to R.E. or fund

balances?

RevenueAnalyticsWhy is revenue what it is compared to the prior year?How does it compare to the budgetHow does it compare to the budgetWere management’s / Directors’ expectations metWhat are main reasons for the increase/decrease?Market / industry trendsGeographic Seasonal / cyclicalNew or lost customers / clientsN li f b i /New lines of business / government programs ForEx affect

Auditors may need to discuss details with V.P. Sales/E.D./Program ManagerSales/E.D./Program Manager

Revenue cont..

Analytics cont... What is the Gross Margin as compared to the priorWhat is the Gross Margin as compared to the prior

year and why? GM% by product lineGM% by geographic locationGM% by geographic locationForEx fluctuationsCapacity constraints / utilizationIndustry statistics / averagesIndustry statistics / averages

Auditors may need to discuss details with V.P. Sales/E.D./Program Manager

Revenue cont..

ExistenceExistence Is the revenue recognition policy applied consistently? Are unusual sales terms handled correctly: Consignment inventory Consignment inventory Layaway sales

Is ForEx recorded at the date of transaction correctly?

Completeness When are invoices generated for shipped goods? Access to first and last invoices / shipping documents around the Access to first and last invoices / shipping documents around the

year-end Consider open contracts o/s at year-end – any revenue to recognize? Listing of contracts active at year-endg y

Access to subsequent bank statements

Revenue cont..

ValuationAre estimates reasonable?Percentage of completion contractsMilestone-based contractsSignificant returnsAvoid being overly conservative – GAAP requires

most “reasonable” estimate not most conservativemost “reasonable” estimate, not most conservative

DisclosureRevenue recognition policyRevenue recognition policyForeign exchange translation policyEconomic dependence Government assistance (for-profit entities)Go e e t ass sta ce ( o p o t e t t es)

Expenses other than COGSp

Salary and benefits Calendar year–end – T4 reconciliation (T4 Summary to

G.L. accounts)Non-Calendar year-end – prepare a T4 reconciliation y p p

adjusting for timing differencesAgree G.L. accounts to payroll provider reports. A list of hires and terminations in the year and materialA list of hires and terminations in the year and material

changes in salaries given to staff Benefits as a % of salary, trend analysis

Expenses other than COGS

LegalVouch and examine 100% of legal invoicesDi t f i iDiscuss nature of invoicesPrepare and send legal letter describing any

outstanding claims to corporate lawyers

Expenses other than COGS

Repairs, maintenance, office, computerReview G.L. details for large amounts that should

potentially be capitalizedp y pDiscuss any large amounts with you Agree to supporting invoices

All Other ExpensesAll Other Expenses

Review for major, unexpected fluctuations and i ti i th t 3 t 5 (i t dvariations comparing the past 3 to 5 years (i.e trend

analysis) Compare actual expenses to budget (if one is

d)prepared)Relate expenses to other sections of the audit for

example insurance with prepaids, interest expenses ith d bt twith debt, etc.

Review contracts and agreements such as premise lease contract and agree to G.L., etc

l l File clean-up Expect follow-up questions Subsequent events discussion Subsequent events discussionTrack any events which is unusual, large or relevant

to the current year-endLi i iLitigationLarge contractsNew commitmentsLoss of businessNew competitorsNatural disasters

adamsmiles.com For Illustrative Purposes Only

Date ABC Limited 200 Nowhere Street Toronto, ON M1T 3F6 Attention: Mr. Smith Dear Mr. Smith: Re: ABC Limited Year Ended December 31, 2013 Please find listed below schedules and/or work that we require for our year-end 2013 audit fieldwork. Electronic copies of the schedules in Excel or PDF format are preferable. Please contact us to clarify any items or if you require any additional support. Balance Sheet Cash - Bank reconciliations (all accounts); including detail of outstanding cheques and

deposits at December 31, 2013, with bank statements for December 2013; - Listing of any cheques issued at year-end but not released until January 2014;

- Listing of all disbursements (cheques and wire transfers) for the month of January 2014;

- Listing of new bank accounts; - Copies of new, amended or updated credit facility agreements, including

calculation of any financial covenants as of December 31, 2013. Accounts Receivable - Accounts receivable (A/R) listing as at December 31, 2013 reconciled to Trial

Balance accounts. Please forward A/R listing to Adams & Miles as soon as possible for us to make an A/R confirmation sample.

- Listing of doubtful accounts (not yet written off) reconciled to the allowance for doubtful accounts amount recorded as of December 31, 2013 and explanations of their statuses;

- Listing of the last ? shipments of goods to customer in 2013 and the first ? shipments in 2014, including invoice number, date, amount and shipping date;

- Summary of outstanding HST balances payable/receivable reconciled to the balance in account # HST as of December 31, 2013;

- Listing of all receipts (deposited cheques and wire transfers) for the month of January and February 20142014.

Inventory - Detailed and summary listings of inventory on-hand, stored off-site, and in-transit

at December 31, 2013, including descriptions, quantities and costs; - A report reconciling for any activity (production, sales, purchases) between the

completion of the physical count on December 30, 2013 and December 31, 2013;

…/2

adamsmiles.com For Illustrative Purposes Only

- 2 - Inventory (cont’d)

- Inventory summary at December 31, 2013; - Finished goods costing details for a sample of F.G. parts; - Official price listings as of December 31, 2013 for the F.G. parts selected above; - WIP costing details for a sample of WIP parts; - Summary of any inventory held on-site at December 31, 2013 which was not

owned by ABC Limited; - A listing of inventory on consignment at customer’s premises at December 31,

2013, ensuring it is carried at cost; - List of the ? last purchase orders in December 2013 and the first ? in January

2014, including photocopies of shipping documents and/or invoice showing shipment terms and delivery dates;

Prepaids - Summary of balances included in prepaid expenses as of December 31, 2013 with

supporting documentation. Capital Assets

- Capital assets continuity for each capital asset account, showing additions, dispositions and calculation of amortization expenses, with a reconciliation of amortization expense calculated to the amount recorded in Trial Balance as of December 31, 2013;

- List of capital assets under construction or not in use as of December 31, 2013; - Documentation on any new lease agreements entered during the year, with

supporting documentation on operating vs. capital accounting treatment decision; - G.L. details for maintenance, office and computer expense for 2013 with

descriptions of any items over $XX noting whether such items are expenses vs. capital in nature.

Accounts Payable - Aged account payable (A/P) listings by vendor at December 31, 2013, reconciled

to Trial Balance accounts. Please forward A/P listing to Adams & Miles as soon as possible for us to make an A/P confirmation sample;

- Support for foreign exchange on Accounts Payable balance recorded as of December 31, 2013;

- Copies of government filings - employer remittances, HST and QST reconciled to the general ledger balances;

- December 2013 HST filing including a calculation of Restricted ITC’s; - Breakdown of other accrued expenses accounts, including supporting calculations:

- Accrued vacation pay (including salaried and hourly employees); - Accrued payroll liability / payroll clearing / source deductions payable; - Accrued other.

Taxes - General Ledger details for income tax expense and liabilities accounts for the year;

- Total meals and entertainment expense for the year; - Summary of interest and penalties on government remittances, if applicable.

…/3

adamsmiles.com For Illustrative Purposes Only

- 3 - Long-term Debt - Copies of all new debt agreements entered into during the year and schedules of

repayments; - Amortization schedule for Equipment loan reconciled to the loan balance recorded

in Trial Balance as at December 31, 2013. Related Party Accounts

- Detailed schedules of the outstanding balances due to/from related parties reconciled to the G.L. account balances as at December 31, 2013.

- Summary of all transactions with related parties in the year (revenue and expenses).

- Indicate if any of the activity with related parties in the year relate to capital assets items.

Income Statement - Listing of sales by customer (in $ terms) for 2013; - Access to copies of all major sales contracts (if any) entered into by ABC Limited in

2013; - Reconciliation of calculated commission expense for 2013 to the amount recorded

in the Trial Balance; - Description of any purchase commitments entered into by ABC Limited in 2013; - A schedule reconciling the 2013 T4 Summary gross earnings to the account(s) in

the Trial Balance; - Listing of 2013 hires and terminations (excluding temporary employees), including

month of hire/termination; - Summary of professional fees and legal fee expense account by vendor; - A brief explanation/analysis of changes over $XX from prior year in individual

expense accounts (excluding Cost of Sales and Salary/benefits accounts). -

Other - A copy of the trial balance dated December 31, 2013 emailed to Adams & Miles by

?; - General Ledger detail for year ended December 31, 2013 in Excel format, if

available; - Ensure that all monetary assets and liabilities (cash, bank indebtedness, A/R, A/P,

related party balances and loans, etc.) held in foreign currencies are translated into Canadian dollars at Bank of Canada closing rates for December 31, 2013;

- Copies of all resolutions and minutes of shareholder meetings in the year and listing of all Directors’ meetings held during the year;

- Listing of lawyers used in the year and description of claims, if any, against ABC Limited.

Your assistance in the preparation of the above-mentioned schedules will greatly assist us in completing all work within the time and budget agreed upon. If you have any questions, please do not hesitate to contact our office. Yours truly, Adams & Miles LLP

adamsmiles.com For Illustrative Purposes Only

ABC Manufacturing LimitedCapital assets continuityFor Year Ended December 31, 2013

COST ACCUMULATED AMORTIZATION NET BOOK VALUEOPENING

DESCRIPTION DISPOSALS BALANCE 2013 2012

Land 198,733.34 198,733.34 1202 - - - 1302 198,733.34 198,733.34

Building 1,573,069.80 1,573,069.80 1203 228,205.24 13,448.65 241,653.89 1303 1,331,415.91 1,344,864.56

Renovations Internal 112,338.06 14,118.35 126,456.41 13,756.82 2,641.01 16,397.83 110,058.58 98,581.24

Funders - - - - - - 112,338.06 14,118.35 - - 126,456.41 1204 13,756.82 - 2,641.01 16,397.83 1304 110,058.58 98,581.24

ComputersInternal -

2007 28,638.81 28,638.81 3 yrs 23,865.68 4,773.14 28,638.81 - 4,773.14 2008 57,755.35 57,755.35 3 yrs 28,877.68 19,251.78 48,129.46 9,625.89 28,877.68

Funders2007 46,139.37 46,139.37 3 yrs 38,449.48 7,689.90 46,139.37 - 2008 7,791.46 7,791.46 3 yrs 3,895.73 2,597.15 6,492.88 1,298.58 3,895.73 2009 25,508.70 25,508.70 3 yrs 4,251.45 8,502.90 12,754.35 12,754.35 21,257.25 2013 44,086.59 44,086.59 3 yrs - 7,347.77 7,347.77 36,738.83

165,833.69 44,086.59 - 209,920.28 1205 99,340.01 50,162.63 149,502.64 1305 60,417.64 66,493.69

Furniture and Fixtures 49,058.40 131,123.61 180,182.01 1206 29,814.91 8,480.53 38,295.44 1306 141,886.57 19,243.49

Leasehold Improvements Internal

2008 19,242.40 19,242.40 5 yrs 5,772.72 3,848.48 9,621.20 9,621.20 13,469.68 Funded

2007 286,882.88 286,882.88 5 yrs 143,441.44 57,376.58 200,818.02 86,064.86 143,441.44 2008 77,667.83 77,667.83 5 yrs 23,300.35 15,533.57 38,833.92 38,833.92 54,367.48 2009 46,740.00 46,740.00 5 yrs 4,674.00 9,348.00 14,022.00 32,718.00 42,066.00

430,533.11 - - 430,533.11 1207 177,188.51 86,106.62 263,295.13 1307 157,616.78

Software Licence 25,000.00 25,000.00 1208 - - 1308 25,000.00 25,000.00

2,554,566.40 189,328.55 - - 2,743,894.95 548,305.48 - 160,839.44 709,144.93 2,036,763.02 2,008,272.92 8500

10.00%

2.50%2.50%

ADJ'MTSENDING

BALANCEAMORTRATE

1.00%

OPENINGBALANCE ADDITIONS BALANCE

ENDINGADJ'MTS

adamsmiles.com For Illustrative Purposes Only

ABC Manufacturing LimitedBank Loan Payable ScheduleFor Year Ended December 31, 2013

Monthly Payment 18,128.34 Number Monthly Payments 84

Annual Interest Rate 3.250%

Monthly interest rate 0.271%

Remaining Date Amount Interest Principal Balance84 1,364,029.9783 7/09/12 18,128.34 0.00 18,128.34 1,345,901.6382 8/09/12 18,128.34 3,645.15 14,483.19 1,331,418.4481 9/09/12 18,128.34 3,605.92 14,522.42 1,316,896.0280 10/10/12 18,128.34 3,566.60 14,561.74 1,302,334.2879 11/10/12 18,128.34 3,527.15 14,601.19 1,287,733.0978 12/11/12 18,128.34 3,487.61 14,640.73 1,273,092.36

Current portion 108,770.04 17,832.43 90,937.61

77 1/11/13 18,128.34 3,447.96 14,680.38 1,258,411.9876 2/11/13 18,128.34 3,408.20 14,720.14 1,243,691.8475 3/14/13 18,128.34 3,368.33 14,760.01 1,228,931.8374 4/14/13 18,128.34 3,328.36 14,799.98 1,214,131.8573 5/15/13 18,128.34 3,288.27 14,840.07 1,199,291.7872 6/15/13 18,128.34 3,248.08 14,880.26 1,184,411.5271 7/16/13 18,128.34 3,207.79 14,920.55 1,169,490.9770 8/16/13 18,128.34 3,167.37 14,960.97 1,154,530.0069 9/16/13 18,128.34 3,126.85 15,001.49 1,139,528.5168 10/17/13 18,128.34 3,086.22 15,042.12 1,124,486.3967 11/17/13 18,128.34 3,045.49 15,082.85 1,109,403.5466 12/09/13 18,128.34 3,004.63 15,123.71 1,094,279.83 2.

TOTAL 2013 217,540.08 38,727.55 178,812.53$ Account 5605

65 1/09/14 18,128.34 2,963.68 15,164.66 1,079,115.1764 2/09/14 18,128.34 2,922.60 15,205.74 1,063,909.4363 3/12/14 18,128.34 2,881.42 15,246.92 1,048,662.5162 4/12/14 18,128.34 2,840.13 15,288.21 1,033,374.3061 5/13/14 18,128.34 2,798.72 15,329.62 1,018,044.6860 6/13/14 18,128.34 2,757.20 15,371.14 1,002,673.5459 7/14/14 18,128.34 2,715.58 15,412.76 987,260.7858 8/14/14 18,128.34 2,673.83 15,454.51 971,806.2757 9/14/14 18,128.34 2,631.98 15,496.36 956,309.9156 10/15/14 18,128.34 2,590.00 15,538.34 940,771.5755 12/09/14 18,128.34 2,547.92 15,580.42 925,191.1554 1/09/15 18,128.34 2,505.73 15,622.61 909,568.54

TOTAL 2014 217,540.08 184,711.29$ 3.53 2/09/15 18,128.34 2,463.42 15,664.92 893,903.6252 3/12/15 18,128.34 2,420.98 15,707.36 878,196.2651 4/12/15 18,128.34 2,378.45 15,749.89 862,446.3750 5/13/15 18,128.34 2,335.79 15,792.55 846,653.8249 6/13/15 18,128.34 2,293.03 15,835.31 830,818.5148 7/14/15 18,128.34 2,250.13 15,878.21 814,940.3047 8/14/15 18,128.34 2,207.13 15,921.21 799,019.0946 9/14/15 18,128.34 2,164.01 15,964.33 783,054.7645 10/15/15 18,128.34 2,120.77 16,007.57 767,047.1944 11/15/15 18,128.34 2,077.42 16,050.92 750,996.2743 12/16/15 18,128.34 2,033.95 16,094.39 734,901.8842 1/09/16 18,128.34 1,990.36 16,137.98 718,763.90

TOTAL 2015 217,540.08 190,804.64$

Total loan oustanding 2 1,094,279.83 Account 2950As at December 31, 2013

Less: Current portion 3 184,711.29$ Account 2960Total Loan Payble 909,568.54$

Amount per GL 909,569.07$

(0.53)$

PAYMENT

adamsmiles.com For Illustrative Purposes Only

ABC Manufacturing LimitedDue from ABC Wholesale ReconciliationFor Year Ended December 31, 2013

Account 3450 Due from ABC Wholesale Limited Dec.31/2013 125,000.00

Reconciliation - activities Dec.31-Mar.31 2014:Overhead charge-back to ABC Wholesale 15,000.00 Sales to ABC Wholesale 25,000.00 Payments received from ABC Wholesale 35,000.00- Calculated balance as of Mar.31 2014 130,000.00

Per ABC's books Mar.31 2014 127,000.00

diff 3,000.00 1.

1. Credit memo dated Mar. 15, 2014 - not yet approved by management of ABC Manufacturing as of Mar.26/2014.

adamsmiles.com For Illustrative Purposes Only

Y-E Accruals/Payroll Paid Reversals not

Date Description G.L. a/c # Thru Ceridian in Ceridian Total per GL Difference

12/31/13 Salaries (incl. Bonus paid during year) 6650 $325,661.00 12,000.00 $337,661.00 $0.0012/31/13 Year-end Bonus 6651 $24,000.00 $24,000.00 $0.0012/31/13 Vacation Pay 6652 $11,689.00 $11,689.00 $0.00

Balance per Ceridian T4 Recap $337,350.00

12/31/13 Employer CPP 6653 $10,060.01 $10,060.01 $0.00Employee CPP $10,060.01 N/A

12/31/13 Employer E.I. 6654 $6,378.22 $6,378.22 $0.00Employee EI $4,555.87 N/AIncome tax deducted 103,272.46 N/A

Balance per CRA Statement of Account $134,326.57

ABC Manufacturing LimitedT4 ReconciliationFor the Year Ended December 31, 2013