#3 Controls & Risk

The hydroelectric power plant facility has now been completed, and the construction firm is prepared to transfer ownership and management control to WOW for $50 million. However, shortly before the transfer is consummated, a group of intrepid Vastarian journalist bloggers post evidence on an online whistleblower web site that one or more questionable cash disbursements were made by a WOW public relations representative to members of the Vastarian royal family during the contract bidding process.

The Chief Financial Officer of WOW is unhappy that his internal auditors and his public accounting audit firm (a local African firm) both failed to detect these payments. BFAC’s partner asks you to update the prior valuation and sustainability documentation to incorporate these new considerations, and to consider the possibility of a proposal to provide advisory services to WOW regarding potential weaknesses in the internal controls of the cash disbursements system.

1. You must demonstrate that you can review different sets of authoritative literature, and that you can select the set that best provides relevant guidance to a vaguely defined business question or challenge.

In other words, you must: (a) identify the objective that the organization is attempting to achieve, and (b) select the set of authoritative literature that best applies to the situation.

Required:

a. Identify the objectives of GAAS and discuss whether they are applicable to the needs of WOW and BFAC.

b. Identify the objectives of COSO and discuss whether they are applicable to the needs of WOW and BFAC.

c. Identify the objectives of the PCAOB and discuss whether they are applicable to the needs of WOW and BFAC.

d. Identify and discuss any control and risk needs of WOW and BFAC that are not addressed by these entities and their standards.

2. You must interpret and apply the relevant authoritative guidance to the question or challenge in a manner that supports and defends a business recommendation.

In other words, you must make a recommendation to the organization, and must describe how your recommendation will help the organization achieve its objective. You must also describe how well the authoritative literature supports your recommendation.

Required:

a. Identify the objectives and risks of agreed-upon procedure engagements and discuss whether such engagements are applicable to the needs of WOW and BFAC.

b.  Identify the objectives and risks of review engagements and discuss whether such engagements are applicable to the needs of WOW and BFAC.

c.  Identify the objectives and risks of audit engagements and discuss whether such engagements are applicable to the needs of WOW and BFAC.

d. Recommend one of these types of engagements for WOW and BFAC and identify appropriate business practices that can be adopted to address the risks of the endeavor.

3. You must assess how well, or how poorly, the business recommendation has been implemented in similar situations that have been confronted by similar organizations.

In other words, you must describe how other organizations in the “real world” have achieved this objective. You must note whether these organizations followed your recommendations, and (if so) whether they achieved their objectives.

Required:

a. Describe the Foreign Corrupt Practices Act (FCPA) and assess its applicability to global energy projects.

b. Review “real world” case information regarding the Avon and GlaxoSmithKline (GSK) charges regarding the FCPA. Identify the internal controls that Avon and GSK should have implemented to address such concerns.

c. Describe why such controls failed to address these concerns at Avon and GSK.

d. Recommend internal controls that should be implemented at WOW to address such concerns. Assess whether BFAC should perform a client engagement at WOW, with or without the implementation of these controls.

4. You must develop a plan of action that addresses the possibility that your business recommendation may fail to achieve the business objective.

In other words, you must define how success or failure should be measured. And when measurements indicate that failure is likely, you must describe what the organization should do.

Required:

a. Assume that WOW engages BFAC. Describe how BFAC should define its materiality threshold(s) for its tests of internal controls.

b. Assess the system of Enterprise Risk Management (ERM) that exists at WOW. To what extent may it impact the effectiveness of WOW’s internal controls, as well as the effectiveness of BFAC’s procedures?

c. Assess the legal environment and culture that exists at WOW and throughout Vastaria. To what extent may it impact the effectiveness of WOW’s internal controls, as well as the effectiveness of BFAC’s procedures?

d. Describe how variable or contingent materiality threshold(s) may be utilized to address these concerns. Consider modifying the spreadsheet model in Module #1, as well as your conclusions in Module #2, to address these considerations.