1. Section 5 Direct Reporting Engagements and Business Advisory Services

2. Introduction We will look at examples of direct reporting and business advisory services Need for specialization

3. 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 Specific engagements to be looked at:

4. 1.Fears over Internet led to WebTrust WebTrust principles: –Business practice disclosure –Transaction integrity –Information protection WebTrust Seal New Services Provided by Public Accountants

5. Looked at internal controls and included: –Introductory paragraph –Scope paragraph –An opinion paragraph –Additional explanatory and disclaimer paragraphs A WebTrust Audit Report

6. Why concerned over environmental issues? Aug-19 provides guidelines Legislative activity ISO-14000 2.Environmental Audits

7. 1.Forensic Auditing Auditors use an expanded skill set: –Information systems skills –Association of Certified Fraud Examiners Investigative and Forensic Accounting specialization Forensic Auditing and Business Valuations

8. The goal of any business up for sale? Accountants trained in special methods Can also arrange auction 2.Business Valuations

9. Consulting services We will look at: 1.Risk management services 2.Controls assessment services 3.Information systems quality assurance services 4.Information systems selection and implementation assistance Business Advisory Services

10. 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 1.Risk Management Services

11. How does auditor get understanding of controls? What should the auditor do about identified weaknesses? What can the auditor do to improve the situation? 2.Controls Assessment Services

12. 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? 3.Information Systems Quality Assurance Services

13. How can public accountants help in this area 4.Information Systems Selection and Implementation Assistance

14. 24-18: Regional Airlines limited (RAL) is a regional airline serving as a feeder for one of the national airlines. RAL’s 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, RAL’s 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 RAL’s 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 RAL’s 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.

15. 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 farm’s 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 Farmco’s loans. Required: Discuss which audit procedures you would carry out in completing this assignment and why.

16. 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 company’s 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.

17. Various Polymer Resins Heat Processed; moulded and formed (per customer specifications) Water Various consumer plastic products Sold to customers Oxy-1 Sold to Acme Chemicals Oxy-2Disposed of 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. Additional Comments