Ecopak Case Notes Chapter 4 5

CHAPTER 4: REPORTS ON AUDITED FINANCIAL STATEMENTS
 Stakeholders
o Users
 Kam, and Mike are the investors of EcoPak’s biomass-based food
packaging business.
 Ella is an audit partner from the firm Pettit and Foure (P&F). She has
been on the Environmental Stewardship Board.
o Petit and Foure (P&F)
 Hired by EcoPak to have an auditor-client relationship.
 Case Summary
o Kam and Mike are looking to further expand the business. They also consider
taking EcoPak public.
o Ella Foure, an acquaintance of Nina, is an audit partner from P&F.
o EcoPak’s inventory system got corrupted, record for last three months of
transactions were lost. Ella finds this suspicious.
o Ella explains that Kam and Mike can get a qualified audit opinion, or they can
get an unmodified audit opinion.
o Further, Ella realizes that EcoPak needs a system upgrade, so she suggests IT
consultants to setup appropriate business processes, a reliable information
system, and internal controls.
o This way P&F can perform a different type of assurance engagement that
provides moderate assurance.
 Corrupted records: they lost three months of transaction records.

o The inventory system became corrupted and three months worth transaction
records were lost.
o But Kam and Mike say that the profit numbers are still up.
o This looks troubling to Ella since she is not familiar with this business. She
suspects that this could have been done intentionally to manipulate financial
records.
 Kam and Mike have two alternatives:
o Kam and Mike can get a qualified audit opinion.
o Or they can get an unmodified audit opinion.
 Suggested alternative:
o In this case, an auditor’s opinion on the truthfulness of financial statements is
restricted. It is due to the inability to find all records that the auditor needs to be
reasonably sure about the fact that material misstatement is absent.
 System upgrade:
o Ella realizes that EcoPak’s systems are not suitable for the volume of business
that they are doing. This makes the company not auditable.
o She suggests that IT consultants to be called so that they can setup appropriate
information system and internal control.
 Alternatives: review engagement
o Suggested by Ella.
o This engagement can provide moderate assurance.
o It requires less evidence than an audit.
 Suggested alternative: review engagement for this year
o This can give Ella time to understand EcoPak’s daily business practices and she
will have a fair knowledge for next year audit.
o By the next year, the newly installed systems will also provide more efficient
data for an audit.
CHAPTER 5: PRELIMINARY AUDIT PLANNING: UNDERSTANDING THE

AUDITEE’S BUSINESS
 Stakeholders
o Users
 Kam, and Mike are the investors of EcoPak’s biomass-based food
packaging business.
 Kam is appointed as CEO and Mike is appointed as Chief Operating
Officer (COO)
 Nina has decided to join EcoPak as a full-time CFO.
 Aunt Zhang is appointed as chair of EcoPak’s board of directors.
 Ella is an audit partner from the firm Pettit and Foure (P&F). She has
been on the Environmental Stewardship Board.
o Petit and Foure (P&F)

o Enterprise Integration Solutions

 Hired by EcoPak.
 Provides latest manufacturing software and hardware.
 Designs and implements business processes to look after information
processing, revenues, purchasing and many more activities.
o Meyer and Gustav (M&G)

 Case Summary
o Kam and Mike hire a IT firm called Enterprise Integration Solutions. It designs
and implements business processes to look after all the information.
o Ella’s firm P&T has audited the company’s financial statements over the past
few years. All board members appreciate the work done by Ella and her audit
team.
o Nina explained to Kam and Mike about the process of auditing. The auditors
need to ask questions and check everything on their own to be reasonably sure.
o Kam and Mike plan to make EcoPak public.
o Ella informs them that her firm will not be able to continue as EcoPak’s auditor
firm if they become public.
o P&T has a strategic decision to only assist small to medium-size private
companies in their auditing process.
o EcoPak approaches Tariq Khan from M&G and assigns it as the partner in
charge of EcoPak’s audit engagement.

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CHAPTER 4: REPORTS ON AUDITED FINANCIAL STATEMENTS

 Corrupted records: they lost three months of transaction records.

CHAPTER 5: PRELIMINARY AUDIT PLANNING: UNDERSTANDING THE

o Petit and Foure (P&F)

o Enterprise Integration Solutions

o Meyer and Gustav (M&G)

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