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iBee is a private corporation located in
un 'ey oodles Corners, Ontario, that owns and maintains
a large honeybee colony. Tom Doodles established the company
as a small hobby business in 1967. Over time, Tom's
great-tasting and high-quality honey grew into a large bUsiness.
In 2002, Tom incorporated iBee and split the company's
share ownership with his two children, Emilia and
Mark. Following incorporation, Emilia and Mark each
held 33.33 percent of iBee shares. Tom was always the
sole decision maker at iBee, overseeing all production and
administrative matters. He taught Emilia and Mark everything
he knows about good beekeeping practices and honey
production.
During a family vacation to Iceland in 2010, Tom
noticed the potential market that the country presented for
his honey. The following year, Tom signed a contract with
an Icelandic honey distributor named Hnit. The opening of
the Icelandic market caused an increased demand for iBee's
honey. Icelanders strongly prefer iBee's honey over other
brands and will pay a premium price for it because iBee's
honey always comes in a liquid form and it has a high nutritional
value. When honey is stored at low temperatures for
long enough, it will crystallize (change from a liquid to a
solid). Crystallized honey can be changed back to its liquid
form by heating it at a high temperature, but this process
significantly reduces its nutritional value. As a result, honey
processed by this method is priced at 50-60 percent less than
untreated liquid honey.
In response to this increased demand, Tom contemplated
a plan to expand the company by acquiring three nearby,
private beekeeping operations. In anticipation of financing
these acquisitions, Tom approached your accounting firm,
Accounting-iS-fuN LLP, in early 2017, requesting an audit of
iBee's financial statements. The audit was performed and an
unqualified opinion was issued.
It is now November 25,2018, and you are the senior auditor
at Accounting-iS-fuN LLP, in charge of the iBee financial
statement audit for the November 30, 2018, year-end. Following
are the highlights from the iBee engagement team meeting
and audit notes from the prior year.
Change in Management-In the fall of 2018, Tom was
injured in a car accident. His recovery was very slow, which
forced him to transfer iBee's day-to-day operations to his children
in early 2018. Emilia, who recently completed her MBA,
took over all accounting and administrative matters. Mark had
always shown a passion for beekeeping so he became head
beekeeper, managing the bees and the production, storage,
and distribution of honey. Tom, meanwhile, focused on his
recovery and became an inactive owner.
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