You a CGA are the audit partner on the audit #98

You, a CGA, are the audit partner on the audit of Favour Care Homes, a not-for-profit
organization that helps seniors remain in their own homes. Favour has been an audit client of
your firm for a number of years. As a condition for a substantial amount of government funding,
Favour must follow accounting standards for not-for-profit organizations as specified in the CICA
Handbook , Part III.While reviewing the general journal, the senior auditor noted an entry to
reverse rent payable of $160,000 to Forgetful Inc.When following up with the controller, the
senior auditor was informed of the following:• Favour has leased office space from Forgetful for
the past six years. Last year, a new five-year lease was signed with an increase in rent from
$100,000 per month to $110,000 per month, effective September 1, 2012.• Even though a new
lease had been signed, Favour continued to pay $100,000 per month because it had provided
postdated cheques to the end of 2012. The $10,000 shortfall in monthly rent was accrued as
rent payable since September 1, 2012.• It appears that Forgetful has not noticed the shortfall in
monthly rent since it has not followed up with Favour.• You raise the issue with the controller.
He indicates that Favour is experiencing some difficulty in paying its suppliers on a timely basis
and Forgetful seems to be financially very strong. Favour intends to continue making payments
of $100,000 a month and has reversed the accrued rent payable of $160,000 as of December
31, 2012.RequiredRecommend how your firm should respond to this situation.View Solution:
You a CGA are the audit partner on the audit

ANSWER
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