e-Vision – Business e-Vision – Business Models, Business Risks Models, Business Risks

and Audit Risk and Audit Risk AssessmentAssessment

Authors: J. Efrim Boritz and Theophanis Stratopoulos The University of Waterloo

Discussant: Glen Mazur, CA∙CISA BDO Dunwoody LLP

Evaluation of Case ContentEvaluation of Case Content

Strengths◦Overall a solid case with excellent class room

potential◦Easily scalable for difficulty

Potential Drawbacks◦Lack of material surrounding internal controls◦Financials are over-simplified with ambiguity◦Lack of information surrounding management’s

abilities and internal capabilities; risks of process change is hard to assess given facts

Evaluation of Teaching Notes - Evaluation of Teaching Notes - GeneralGeneral

Strengths◦Overall a good coverage of key issues◦Depending on course background of students

relatively good in-depth coverage of the issues

Potential Drawbacks◦No discussion of potential severances or other

unaccrued liabilities◦Many software companies have remote

connections to customers – would be excellent place to introduce IT controls to students

Evaluation – First ChallengeEvaluation – First Challenge

Strengths◦Very good coverage of HIPAA risks◦Deferred costs was a good discussion point

Potential Drawbacks◦HIPAA has right to audit; what critical

procedures should we verify to ensure no impairment to receivables or future revenues

◦External verification of compliance; if not, potential liabilities for breaches of security

Evaluation – Challenge 2Evaluation – Challenge 2

Strengths◦Emphasis on top line revenue was very valid◦Megers and acquisitions creating valuation of

intangibles was good

Potential Drawbacks◦No discussion of economic downturn in US,

healthcare plan coverage, etc.◦No discussion of US interest rates and what affect

this might have on cash flow discounting for impairment testing

◦No discussion on unaccrued sales commissions; my experience has found end-of-contract payouts unaccrued

Evaluation – Challenge 3Evaluation – Challenge 3

Strengths◦Solid point re: valuation of shares taken as a lot

of students not likely familiar with non-public share valuations

◦Good discussion of NMT’s (as presented)

Potential Drawbacks◦No discussion of monitoring %ownership of

customers; for small companies could create significant influence issues

◦No discussion re: potential other NMT’s

Evaluation – Challenge 4Evaluation – Challenge 4

Strengths◦ R&D capitalization was key to this area◦ Point of resource allocation was valid but 100-50% fee

reduction seemed large; if anything like a prof. Services firm, billing rates would be moved down accordingly

◦ Liked incorporating IT strategic plans into discussion; however (see below)

Potential Drawbacks◦ If billing rates used, amount charged per project can be

skewed with cheaper labour on some, affecting margins, COGS, and inventory

◦ Strategic IT requires large capital; can e-Vision meet these needs or will they require financing for the first time – then risk of cash flows, covenants

Concluding ThoughtsConcluding Thoughts

Excellent case to highlight several auditing issues in an IT intensive business

Potential to add an extra level of complexity to the decision making model – what area’s of risk, audit assertions affected and potential audit procedures