Direct Reporting Engagements and Business Advisory Services

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Section 5

• Direct Reporting Engagements and Business
  Advisory Services

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Introduction

• Need for specialization

• We will look at examples of direct reporting and
  business advisory services

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• Specific engagements to be looked at

1. WebTrust
2. ISO-1400, Environmental Systems
3. Forensic audits
4. Business valuations
5. Risk management services
6. Controls assessment services
7. Information systems quality assurance services
8. Information systems selection and implementation

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New Services Provided by Public Accountants

• Fears over Internet led to WebTrust
• WebTrust principles
• Business practice disclosure
• Transaction integrity
• Information protection
• WebTrust Seal

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A WebTrust Audit Report

• Looked at internal controls and included
• Introductory paragraph
• Scope paragraph
• An opinion paragraph
• Additional explanatory and disclaimer paragraphs

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2. Environmental Audits

• Why concerned over environmental issues?
• Aug-19 provides guidelines
• Legislative activity
• ISO-14000

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Forensic Auditing and Business Valuations

• Forensic Auditing
• Auditors use an expanded skill set
• Information systems skills
• Association of Certified Fraud Examiners
• Investigative and Forensic Accounting
  specialization

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2. Business Valuations

• The goal of any business up for sale?
• Accountants trained in special methods
• Can also arrange auction

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Business Advisory Services

• Consulting services
• We will look at
• Risk management services
• Controls assessment services
• Information systems quality assurance services
• Information systems selection and implementation
  assistance

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1. Risk Management Services

• Continuous process
• Running a business exposes the company to risks
• Business risk management
• Define and prioritize objectives
• Identify and analyze resources and risk
  associated with these objectives
• Determine strategy to achieve goals and overcome
  risks
• Implement the strategy
• Measure performance
• Monitor, learn, adapt and start again
• Treasury risk management

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2. Controls Assessment Services

• How does auditor get understanding of controls?
• What should the auditor do about identified
  weaknesses?
• What can the auditor do to improve the situation?

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3. Information Systems Quality Assurance Services

• Recently, many companies had to change their
  systems
• Europe?
• Worldwide?
• Many systems have to undergo continual change to
  keep the competitive edge
• How can accountants help?

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4. Information Systems Selection and
Implementation Assistance

• How can public accountants help in this area

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24-18 Regional Airlines limited (RAL) is a
regional airline serving as a feeder for one of
the national airlines. RALs aggressive
advertising campaign claims that RAL has the
most dependable service in Atlantic
Canada. Ingrid Knorr, the senior partner of
Spletts Toesser (ST), a medium-sized CA firm,
has been responsible for the audit of RAL since
its incorporation in 1975. Last Friday afternoon,
just after the completion of the audit, RALs
general manager had a meeting with Ingrid. The
general manager was agitated because the Ministry
of Consumer Affairs had demanded that RAL provide
support for its advertised claim to have the most
dependable service. The general manager wondered
whether ST could issue some kind of statement
on RALs service performance. The statement would
be used by RAL to support its advertising claims
to the Ministry of Consumer Affairs and in its
television advertising. He was not very specific
about the nature of the engagement and left it to
ST to design the approach to assess RALs
claim. Since this is an unusual engagement,
Ingrid asks you, a member of her audit staff, to
prepare a memo on what the study would involve
and how to report the results. She also wants you
to assess the implications of accepting the
engagement. Required Draft the memo requested by
the partner.
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24-19 Farmco Limited (Farmco), a privately owned
apple farm, is highly debt leveraged. Two loans
from XYZ Bank are currently outstanding a
long-term loan that is secured by the farms
land, building structure and equipment and, a
short-term demand loan that is secured by
unharvested apples valued at net realizable
value. Farmco also leases some of the farming
equipment from a local supplier. It is now one
month before the harvesting of the apples. The
bank has given you a special assignment to assess
the adequacy of the security for Farmcos
loans. Required Discuss which audit procedures
you would carry out in completing this assignment
and why.
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24-21 Acme Manufacturing Limited (AML) consists
of two operating divisions Acme Plastics, which
produces various plastic consumer products, and
Acme Chemicals, which uses a by-product of Acme
Plastics to produce various resins for sale to
other companies for further processing. A summary
process chart of the operations and additional
comments are shown on the next page. As a result
of increasing public concern about environmental
issues, Donna Rideout, the president of AML, has
asked the audit engagement partner for AML to
provide her with a proposal to conduct an
environmental audit of the Acme Plastics
division. The results will be used to provide an
environmental report card for the division and
will be included in the companys next annual
report to its shareholders. The partner has
asked you to provide him with a memo that
discusses the unique issues in accepting this
type of engagement. Your memo should include a
discussion of the audit approach for this
engagement and the nature and content of the
report that would be issued as a result of the
environmental audit. Required Prepare the memo
requested by the partner.
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Additional Comments
Polymer resins used for the process are purchased
from U.S. suppliers and shipped to the plant in
specially built tanker trucks used by AML. To
avoid contamination of the various resins in
transit, it is necessary to rinse the inside of
each tank with water after each shipment. Water,
obtained from the nearby river, is also used in
the process as both an ingredient and a coolant.
The coolant water returning to the river is
tested regularly to ensure compliance with local
regulations. The process requires considerable
heat, which is produced by thermal generators
that burn natural gas. The gas arrives by
pipe-line from the local gas company. Some excess
heat is recycled throughout the plant to reduce
heating costs in winter. The process produces two
highly flammable liquid by-products, known as
Oxy-1 and Oxy-2. Oxy-1 is packaged into 200 L
drums and stored until sold to the Acme Chemical
division. Acme Chemical further processes it into
varnish resin and sells this product to various
paint manufacturers. At present, there is no
commercially viable use for Oxy-2, which is also
stored in 200 L drums and kept in a storage area
at the back of the property. When necessary
(about twice a year), Acme Plastics contracts
We-Take-All Ltd., an independent waste disposal
company, to have the drums removed.