Case Study 3 Abridged v.3

CASE STUDIES
Case Study 3
Abridged Version
PERFORMING A BLENDED CONSULTING ENGAGEMENT
LEARN ING OB J ECTIVES

■■ Understand and document the engagement customer’s expectations for planned
consulting engagements.
■■ Identify and document the appropriate scope of planned consulting engagements.
■■ Determine and create appropriate work programs to support planned consulting
engagements.
■■ Perform planned consulting engagements.
■■ Determine and document appropriate results and conclusions for completed
consulting engagements.
■■ Communicate final consulting engagement results to the engagement customer.
This is an abridged version of the case study that focuses more on the execution of the consulting engage-
ment and not on the risk assessment in selecting the consulting engagements to participate in. This
abridged version can be more easily adopted to fit the time requirements of a beginning internal audit
class and still meet many of the objectives of understanding the consulting engagement process.
Internal consulting engagements vary dramatically by internal audit function, environment, and organi-
zation. As chapter 15, “The Consulting Engagement,” makes clear, the internal audit function is uniquely
positioned to add value and make an impact on the organization when performing consulting engage-
ments. The current increased focus on an organization’s system of internal controls by regulators, inde-
pendent outside auditors, and management means that internal audit functions are asked more frequently
to provide advice, facilitate activities, and train managers on the effective design, implementation, and
operation of governance, risk management, and internal control processes. This case study uses a fictional,
multinational financial institution as the context within which to explore a number of those consulting
opportunities that real-world organizations pursue as they address the issues they are struggling with
today. Through these engagements, the internal audit function may provide the organization with insight
regarding significant events or provide additional assurance related to an area where additional assurance
is desired.
Because consulting engagements are often done on a one-time basis and have not been performed before,
they require extensive research and planning. And, just as internal auditors are required to have their
research prepared in advance of a consulting engagement, the same is expected of students before they
begin this case study. Because this case study simulates the environment of the financial services industry,
students should do as much research as is required for them to have an understanding of the financial ser-
vices industry and be able to quickly access the knowledge acquired as needed throughout the case study.
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation, Page 1
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Case Study 3: Abridged Version
CASE STUDIES
Performing a Blended Consulting Engagement
As indicated in chapter 15, many engagements can be considered blended consulting engagements since
they contain both consulting and assurance elements. The authors believe this is so common that the exam-
ples and activities in this case study are designed to illustrate how engagements can contain both elements.
PERFORMING CONSULTING ENGAGEMENTS

Resources for consulting engagements are allocated in much the same way they are for assurance engage-
ments. Implementation Guide 2230-1 advises that when determining the appropriateness and sufficiency of
resources, “it is critical that internal auditors assigned to an engagement possess the necessary knowledge, skills,
experience, and additional competencies to perform the engagement competently and thoroughly.” While the
specific skills and experience may differ somewhat from assurance engagements, the thought process for
determining appropriate resources must be equally rigorous.
Once the consulting engagements are scheduled and the appropriate resources have been allocated, the
internal audit team assigned to each specific consulting engagement must meet with the parties involved
to gain a detailed understanding of the engagement customer’s expectations. Standard 2300 states that the
internal audit function “must identify, analyze, evaluate, and document sufficient information to achieve
the engagement’s objectives.” The success of consulting engagements is highly dependent on the internal
audit function’s ability to understand and document the engagement customer’s objectives.
Understanding and documenting the customer’s objectives allows the internal audit function to create an
effective and efficient work program. The work program will include the detailed procedures to be per-
formed by the internal audit team that are necessary to accumulate the evidence and documentation
required to validate assumptions or test hypotheses discussed with the engagement customer when gain-
ing an understanding of the engagement expectations.
Once the work program has been established, the internal audit team will perform the work outlined in the
program. In many cases, the steps and audit procedures may be modified based on additional information or pre-
vious work. This is due to the fluid nature of these assignments. As the work is performed, the results should be
documented as they become known. This is important for two reasons. First, there needs to be a record of
the work performed that will be available to parties who might have an interest at some future point. These
parties may include the customer, board of directors, independent outside auditors, regulatory bodies, etc.
Second, the internal audit team will rely on the documented results to support advice given in response to
the consulting elements of the engagement, and the overall conclusions and recommendations provided to
address the assurance elements. Without an accurate record of the work performed, internal auditors have
a difficult time substantiating engagement advice and conclusions and formulating meaningful recom-
mendations that add value.
Exhibit CS 3-1 Work Program Example illustrates a work program for an engagement that has both a con-
sulting objective and an assurance objective (that is, a blended engagement).
CASE STUDIES
EXHIBIT CS 3-1
WORK PROGRAM EXAMPLE
Engagement Work Program: Client Data Conversion

Engagement Objectives: As agreed to with management, our objectives are to:
1. rovide advice to the Client Data Conversion Project team on current leading practices for managing data
P
conversion projects.
2. Assess whether the project team completed all steps required by the revised data conversion methodology
to support an accurate, effective, and efficient data conversion.
Engagement Customer Objective: The Client Data Conversion Project sponsor stated that his objective is to
ensure that systems and processes appropriately support an accurate and timely conversion of client data. This
includes:
■■ The data conversion process must be designed and conducted in a manner consistent with leading
practices. This includes documentation of all key judgments and decisions.
■■ Functional gaps between legacy BUS and Bank of China systems must be identified and addressed.
■■ Systems and processes must support an accurate and timely conversion of client data (including accounts,
assets, and web experience).
■■ Required regulatory approvals must be obtained to proceed with the Client Data Conversion Project.
■■ Project, technology, and operational risks must be identified and managed.
Overall Business Risk: Failure to manage effectively the Client Data Conversion Project may result in client
data that is not complete and/or accurate, which could adversely impact servicing those clients in the future and
result in regulatory fines or sanctions.
Steps to Perform:
■■ Engagement Objective #1
• Research leading project management and data conversion practices.
• Based on discussions and observations, identify differences between the current data conversion meth-
odology and leading practices. Specifically evaluate planned steps, communications, monitoring, and
documentation activities.
• Meet weekly with project management to provide observations and identified gaps between leading
practices and the current methodology. Facilitate discussion, as appropriate, to help project manage-
ment determine which new practices they would like to implement.
■■ Engagement Objective #2
• Validate that the project team has tested the reliability of automated data conversion routines for map-
ping of conversion data.
• Assess whether the quality assurance (QA) function has appropriately completed its testing, validation,
and documentation to support its signoff.
• Observe mock runs for the conversion projects. Determine whether the project team has initiated
appropriate actions to address any issues identified during the mock runs.
• Observe Integration Steering Committee updates on the conversion status and determine whether all
key steps are being completed timely.
CASE STUDIES
EXHIBIT CS 3-1 (cont.)

WORK PROGRAM EXAMPLE
Record of Work Done:
■■ Confirmed existing methodology (procedures and controls) with project management team (see working
paper (w/p) E.2.20).
■■ Documented identified gaps between leading data conversion practices and the current data conversion
methodology. Also documented discussions about these gaps as part of the weekly meetings with the
project team and their planned implementation actions (see w/p E.2.21-E.2.29).
■■ Reviewed the automated data conversion routines, noting that they were fully tested and signed off as
complete and accurate by the project team (see w/p E.2.40).
■■ Reviewed the QA test plan for the asset conversion (see w/p E.2.50) and sample documentation used by
QA for testing, including balances worksheets (see w/p E.2.51) and file conversion status (see w/p E.2.52).
Worked with QA associates while conducting the demographic testing and observed the testing they
performed with the source systems. No exceptions noted.
■■ Observed mock data conversion runs conducted by the project team as part of the conversion simulation
for completeness and accuracy (see w/p E.2.60 and E.2.61). Noted with each simulation that errors were
identified, tracked, and corrected, and that changes to the timing of key milestones are reasonable. No
exceptions noted.
■■ Confirmed through participation on the Integration Steering Committee that conversion updates were
provided and acted upon timely (see w/p E.2.70). No exceptions noted.
Because of the time urgency associated with many consulting engagements, communication to the cus-
tomer should be frequent during the execution of the engagement. This communication can take many
forms, but in the interim stages of the engagement, it is often done orally or through conference calls and/
or email. Often, consulting engagement communication is tied to specific dates of importance through-
out the engagement (milestones) and key decision points. The type of communications will also be influ-
enced by the scope of the consulting engagement (for example, full-scope, limited-scope, pre-conversion, or
post-conversion review).
Communicating final consulting engagement results to the customer is the last step in a consulting engage-
ment. As with the interim communication, the final communication can take on many forms. Often, com-
municating final engagement results is less formal than it is for assurance engagement results and is often
documented in a memorandum rather than in a formal report. The format and formality of the final com-
munication will be driven by what was agreed upon with the customer. In some cases, the customer may
require a verbal sign-off, for example, prior to a system conversion or major initiative. This verbal sign-off
indicates that the internal audit function has completed its engagement steps, adequately reviewed the
risks and corresponding controls, and is satisfied that the project should move forward. Representatives
from the internal audit function may be included with representatives from a number of other groups required to
sign off on a major project. The final communication should include the details of monitoring or follow-up
required or agreed upon with the customer. Exhibits CS 3-2 Interim Consulting Engagement Communi-
cation (Email) and CS 3-3 Final Consulting Engagement Communication are examples of interim and final
communications for a consulting engagement.
CASE STUDIES
EXHIBIT CS 3-2
INTERIM CONSULTING ENGAGEMENT COMMUNICATION (EMAIL)
From: Lenny F. Moritz

Sent: Thursday, April 13, 20XY 2:44 PM
To: Kerry S. Fish
Subject: Client Data Conversion Status
Client Data Conversion Project

Engagement Status and Next Steps
■■ Data Conversion Methodology

• Completed assessment of data conversion methodology and discussed gaps between the current
methodology and leading practices with project team members during weekly meetings.
• Provided advice to project team on actions that will help to address the identified gaps. Based on
follow-up discussions, it is our understanding that all contemplated actions have been implemented.
■■ Data Conversion Project
• Reviewed the automated data conversion routines, noting that they were fully tested and signed off as
complete and accurate by the project team.
• Reviewed the QA test plan for the asset conversion and sample documentation used by QA for testing,
including balances worksheets and file conversion status. Worked with QA associates while conducting
the demographic testing and observed the testing they performed with the source systems. No excep-
tions noted.
• Participated in first mock run and provided suggestions on ways to address issues that arose during that
run.
• The following steps are planned:
■ Monitor whether the conversion weekend execution plan is executed in accordance with the plan,
including critical path tasks, adequate communications, and timely issue resolution.
■ Evaluate the steps performed by the project team to ensure the accuracy and completeness of the
account data conversion.
■ Monitor the actions carried out relating to position custody conversion (stock, bonds, mutual
funds, options, etc.), including physical custody transition and secure, authorized movement of the
securities.
■ Monitor the steps to ensure an accurate cash management conversion, including cash account
ownership transition and secure, authorized movement of cash.
■ Obtain evidence of regulatory compliance, including the requirements with respect to net capital
calculations.
■ Validate that key balancing and reconciliation controls are operating post conversion (such as
depository reconciliations).
• Fieldwork to occur over and after conversion weekend.
• We expect to issue our report on or about May 20, 20XY.
Lenny Moritz
Audit Consulting Manager
BUS Financial Services
[email protected]
CASE STUDIES
EXHIBIT CS 3-3
FINAL CONSULTING ENGAGEMENT COMMUNICATION
TO: Kerry Fish, Acting CIO and Co-chair – Integration Steering Committee
Julie Sangren, Managing Director and Co-chair – Integration Steering Committee
FROM: LENNY MORITZ, AUDIT CONSULTING MANAGER, BUS Financial Services
SUBJECT: Bank of China CLIENT DATA CONVERSION
REPORT DATE: May 20, 20XY
Internal auditing completed a project agreed to with management in connection with the Bank of China Client
Data Conversion Project. The objectives of this project were to 1) provide advice to the Client Data Conversion
Project team on current leading practices for managing data conversion projects, and 2) assess whether the
project team completed all steps required by the revised data conversion methodology to support an accurate,
effective, and efficient data conversion.
Given that management’s objective for the data conversion project was to ensure that systems and processes appro-
priately support an accurate and timely conversion of client data, we designed our procedures to assess whether:
■■ The data conversion process was designed and conducted in a manner consistent with leading practices.
This includes documentation of all key judgments and decisions.
■■ Functional gaps between legacy BUS and Bank of China systems were identified and addressed.
■■ Systems and processes supported an accurate and timely conversion of client data (including accounts,
assets, and web experience).
■■ Required regulatory approvals were obtained to proceed with the data conversion project.
■■ Project, technology, and operational risks were identified and managed.
PROJECT RESULTS
Overall, the project was conducted in a manner that is consistent with leading practices. Over the course of the
project, we identified several gaps between the current data conversion methodology and leading practices.
The project team addressed all identified gaps on a timely basis. Based on the results of the verification proce-
dures we performed, and assuming timely resolution of the significant concerns discussed below, we believe
the project team followed all appropriate steps in accordance with their methodology to support an accurate,
effective, and efficient data conversion. Therefore, we believe management can prudently move forward with
the Bank of China Client Data Conversion scheduled for May 31, 20XY.
SIGNIFICANT CONCERNS
CAT Testing – Validation testing for the CAT application has not been completed and there are outstanding
defects related to the system. Management has high confidence that testing will be completed and all critical
defects will be resolved prior to the conversion of client data.
Functional Gap Completion – Several functional gap items remain open which have been deemed “showstop-
pers” for the Client Data Conversion Project. Management is actively tracking these items and has high confi-
dence they will be completed prior to conversion weekend.
Regulatory Approval – Regulatory approval to proceed with the Client Data Conversion Project has not been
received from FINRA. Approval is anticipated the week of May 24th and management is confident approval will
be granted prior to conversion weekend.
Copies to:
Jim Picket, Chairman Audit Committee Jack Mack, CEO
Bruce Almighty Independent Outside Auditors Cory Albright
Lisa Grain Jane Branch Sherman Alexie
CASE STUDIES
CASE STUDY
Background Information
The exercise and scenarios in this case study focus on a fictional global financial institution, BUS and sub-
sidiaries (BUS). The financial institution was founded in 1862 and is based in Zurich, Switzerland. BUS
recently completed an initiative to reevaluate its business model and corporate directive. As part of this
initiative, BUS has updated its corporate mission, vision, and strategy.
In conjunction with this cultural shift, management has recently completed an extensive employee edu-
cation and awareness program on the new corporate directives and began a marketing effort to make the
new mission and vision a part of the organization’s branding and image. See exhibit CS 3-4 for BUS’s new
corporate mission, vision, and strategy.
EXHIBIT CS 3-4
BUS’S CORPORATE MISSION, VISION, AND STRATEGY
Mission
We are determined to become the bank of choice for our existing and future customers. We will provide our
customers with easy access to financial services and products across time zones and continents on a 24/7 basis.
Whether our customers want to walk into one of our facilities or access our services online, we’ll be there for
them. Whether they want to manage their retirement savings or calculate their net worth, we’ll be there for
them. We will combine our sophisticated network systems and our dedicated associates to create a banking
experience that is fast, convenient, and productive. Our collaborative work environment will allow us to recruit
and retain knowledgeable, committed associates who will continue to create cutting edge financial tools and
provide customers with award-winning service. Our commitment to both our customers and our associates will
result in dynamic shareholder value.
Vision
BUS is committed to providing integrated, one-stop banking products and services to our customers worldwide.
Strategy
We intend to leverage our one-stop banking approach to significantly increase our customer base by enhancing
and expanding our network of retail banking operations worldwide and, specifically, in China and the U.S. We
intend to gain a larger share of customer assets by providing them with comprehensive financial services and
products through our one-stop banking system that allows for global mobility. We will maintain our low customer
attrition by continuing to provide award-winning customer service. Finally, we will increase customer awareness
and enhance our global corporate image through a comprehensive branding and advertising campaign that will
promote our retail banking offerings and showcase our award-winning customer service and sterling reputation.
We will achieve our corporate strategy, in part, through the successful completion of our growth-related change
initiatives.
BUS is also in the process of implementing major growth-related initiatives designed to strengthen and
expand their new brand and existing client base. See exhibit CS 3-5 BUS’s Growth-Related Change Initiatives
for BUS’s growth-related change initiatives.
CASE STUDIES
EXHIBIT CS 3-5
BUS’S GROWTH-RELATED CHANGE INITIATIVES
■■ Change the name of the organization to “Bank of the United Globe” to reflect our global focus.
■■ Launch an advertising and branding campaign to promote the organization’s new mission, vision, and
strategy.
■■ Educate employees and customers on the new corporate product and service offerings.
■■ Significantly increase our retail offerings by acquiring existing retail banking operations and physical
locations in Asia and the U.S.
■■ Provide a comprehensive package of financial products and services to meet the needs of individual
customers globally.
■■ Leverage our systems, infrastructure, and global back office operations to provide one-on-one financial
advice and account oversight through an expanded retail banking infrastructure.
■■ Provide a fully integrated online banking environment (one-stop) that includes all retail financial services
and products under a single system access login.
Exercise:
Research various global financial services organizations (for example, UBS AG, E-Trade, Schwab, ING,
Bank of America, HSBC, RBS) through their company websites and other publicly available information
(annual report, 10-K, press releases, etc.). Pay particular attention to the regulatory environments that
each organization operates within. Document each organization’s mission, vision, and strategy:
■■ How are BUS’s mission, vision, and strategy similar to other global financial services organizations?
■■ How are they different?
■■ What are the factors that drive the similarities and differences?
■■ How doyou think these differences affect BUS’s ability to compete globally with other financial services
organizations?
■■ How do you think these differences affect the growth-related change initiatives established by BUS?
Currently, the organization’s wealth management and corporate banking operations include products and
services for wealthy clients worldwide. These services include asset management, estate planning, corpo-
rate finance advice, and commercial banking. BUS operations also provide banking and securities services
for individual and corporate clients worldwide.
BUS’s asset management division provides real estate investment opportunities to private, institutional,
and corporate clients worldwide. Its investment banking operations include a range of products and ser-
vices for corporate and institutional clients, governments, financial intermediaries, and asset managers.
The organization’s investment banking operations include fixed income, rates, and currencies businesses
that deliver a range of products and services to corporate and institutional clients worldwide. BUS also pro-
vides a range of advisory and transaction execution services to corporations, financial sponsors, and hedge
funds, such as transaction negotiations, structuring, due diligence, and company valuations. In addition to
the aforementioned products and services, BUS also offers retail banking services to its customers residing
in Switzerland.
CASE STUDIES
BUS provides a wide range of financial products and services worldwide with the objective of rapidly
expanding retail operations internationally. As part of this goal, BUS would like to be known as the “best
financial institution worldwide” by offering the most comprehensive retail and wholesale banking services
and products globally. BUS is moving in that direction by acquiring high-quality retail banks throughout
the world. To embrace this image and brand, BUS has decided to change its name to “Bank of the United
Globe (BUG).” BUG more accurately aligns with the intent of becoming the best financial institution world-
wide. BUG would provide, through its subsidiaries, a wide range of financial products similar to what it
offers today, while significantly increasing its retail offerings, resulting in significant growth of its assets
and physical locations. Management believes that the name change will help strengthen the bank’s world-
wide image and support its efforts to expand into Asia and U.S. markets.
BUS currently has over 200,000 employees worldwide and is organized around serving the needs of its two
primary customer bases: retail and corporate. Because BUS already offers extensive corporate services
globally, its current focus is the expansion of its retail business offerings. The retail side of the organiza-
tion has individual clients or customers that require services such as mortgages, checking accounts, credit
cards, individual loans, brokerage services, insurance, financial advisory services, and various payment
services. The objective of the retail business is to provide a comprehensive package of financial products
and services to meet the needs of individual customers globally. This global focus will allow a high degree
of consistency for BUS’s affluent customers who travel extensively on business or for pleasure, as well as for
those interested in the flexibility of relocating from Europe to the United States or Asia with no interrup-
tion in their banking services. One way BUS is currently doing this is by offering its most popular online
products and services to its affluent customers. This has allowed the affluent customer base to have access
to the products they like and use the most throughout the world via the internet.
BUS is the world’s leading provider of retail banking services and one of the largest asset managers glob-
ally. BUS boasts:
■■ Market capitalization of more than $300 billion
■■ Invested assets of more than $5 trillion.
■■ More than 200,000 employees worldwide.
BUS has a longstanding presence in Asia that reflects its awareness of the unlimited opportunities in this
dynamic region. As a premier global financial services institution, BUS has been a true believer in the
Asian success story and over the years has grown hand-in-hand with many Asian clients. They were one of
the first Swiss banks to establish a physical presence in Asia. BUS currently has a significant retail banking
presence in the Asia pacific region with full-service branches in Hong Kong, Singapore, and Taiwan.
BUS currently uses its elaborate network of systems that allows clients to access specialists who are known
for providing the highest quality services in this region of the world. BUS plans to leverage its systems to
expand the role of these client advisors who provide one-on-one financial advice and account oversight.
BUS consistently wins awards for its exceptional customer service, as well as for the range of products and
services provided to its retail customer base.
Management believes that creating the right framework and culture would expand its growth even further
within the Asian region. They want to double the number of their clients yearly for the next three years
by becoming one of the premier retail support structures and customer service providers anywhere in the
world. To do this, they want to develop a multi-prong approach that combines an extensive branch network
CASE STUDIES
with a completely integrated online banking system that includes all financial services and products under
a single-access login.
To date, the retail side of the organization has been focused on attracting new banking customers and
growing organically by targeting specific cities and other geographic areas of the world with the largest
concentration of wealthy populations, thus helping augment this online product and service offering.
To that end, large retail acquisitions are currently under negotiation and are planned to be announced
simultaneously with the name change. Additional acquisition targets will be evaluated for their potential
to provide high-quality retail products and services, with the goal of increasing their branch network five-
fold and the online customer base tenfold over the next two years. Management has identified Asia as a
potential region for retail acquisitions. This is driven by the growth in population, which has increased the
demand for basic account services related to checking accounts, credit cards, advanced ATM services, and
financial advice, as well as for wealth management services. Management understands that this will cause
an immediate change in the corporate culture.
Although BUS’s online environment was updated a few years ago, management anticipates the need for
online expansion to support this projected growth. Management acknowledges that these goals are very
ambitious, but believes they must follow through on their expansion plan or run the risk of becoming a
takeover target themselves. Additionally, management is acutely aware that this is a departure from their
previous approach to growth and expansion, which was much more conservative and primarily facilitated
by organic growth.
The internal audit function at BUS has approximately 600 auditors of which 300 are centralized at the
organization’s headquarters in Zurich. The total number of auditors fluctuates depending on the number
of open positions and level of co-sourcing at any given point in time throughout their locations across the
world. The internal audit function strongly encourages staff members to move into positions in other areas
of the organization, while high-performing employees in other areas of the organization rotate through the
internal audit function as part of BUS’s formal management trainee program. This management trainee
program is supported primarily by the internal audit function group at headquarters. The trainee program
provides the internal audit staff with a high level of business experience and acumen from other areas of
the organization, which they leverage when performing consulting engagements. This is a high priority
since the chief audit executive (CAE) has been directed by the audit committee and CEO to increase the
consulting engagements they perform from five to 15 percent of the annual internal audit plan.
The internal audit function currently uses co-sourcing from two large international firms for approx-
imately 10 percent of the budgeted audit hours. These co-sourcing resources are utilized for assurance
engagements that require specific language or other specialized skillsets, or that require internal auditors
in locations where no BUS auditors reside. However, these resources are currently not used for consulting
engagements, and management would prefer the consulting engagements be handled by the internal staff
because the knowledge they have of the organization positions them to provide needed insight on signifi-
cant initiatives.
SCENARIOS
Approach the various scenarios below from the perspective of an internal auditor who has been asked to
assist the CAE on a number of internal audit consulting projects. These scenarios can be completed either
in teams or as individual projects.
CASE STUDIES
Scenario 1: Retail Operations Expansion
As noted in the organization profile above, the expansion of the Asian operations is significant to the suc-
cess of the growth-related change initiatives and achievement of the organization’s long- term strategic
objectives. Currently, the CEO is planning to bid on a number of banks in China to gain market share, as
well as establish a local retail banking network and infrastructure.
Management has identified key performance attributes and criteria that have led to their successful expan-
sion of retail operations in China and the Asian market. These criteria include:
■■ Management that is experienced in retail banking operations.
■■ Employees who are focused on customer satisfaction.
■■ Operating controls that are effective and efficient.
■■ Business model that is supportive of corporate financial performance metrics.
■■ Work environment that ensures regulatory compliance.
■■ Ethical cultures that is focused on doing the right thing for customers and employees.
Management believes they can replicate the success of their organic growth by looking for similar attributes
and criteria in the banks they are targeting for acquisition. Management has developed a list of banks that
they are interested in acquiring if due diligence efforts indicate they meet management’s criteria. Banks
acquired will be key to the successful implementation of BUS’s expansion into China and the Asian market.
Acquisition of the wrong banks will be devastating to BUS’s expansion efforts.
The internal audit function has been asked to facilitate the development of a due diligence checklist to
evaluate the acquisition candidate’s management has identified. The CEO would also like the internal audit
function to assist during the due diligence reviews at each of the target banks to advise on the effectiveness
of this checklist and assess whether the due diligence team has comprehensively followed the checklist.
Management believes the results of the due diligence reviews will provide invaluable input and informa-
tion in making a decision whether to move forward with acquiring banks targeted for acquisition. The
CEO’s objective is to quickly and smoothly integrate banks acquired while maintaining high-quality cus-
tomer service. The internal audit function’s involvement will help him achieve this goal.
Scenario 2: Activities
1. If you were facilitating the preparation of a due diligence checklist with members of management who
are experienced in evaluating acquisition candidates, what types of topics would you expect them to
identify as belonging on such a checklist? What are some high-level questions that the due diligence
team might ask during the due diligence process at each bank targeted for acquisition?
2. Propose a blended consulting engagement that would achieve the CEO’s request for the internal audit
function to partner with line management in evaluating acquisition candidates. In the proposal,
address the following:
a. Specifically outline the value that such an engagement would provide to the CEO and line manage-
ment.
b. How should the internal audit function structure the blended consulting engagement so that both
objectives (advising on the effectiveness of the checklist and assessing whether the due diligence
team has comprehensively followed the checklist) are achieved?
CASE STUDIES
c. What safeguard should the internal audit function include to ensure there is no threat to the func-
tions’ independence and objectivity?
d. Outline the internal audit resources that would be needed to perform the consulting engagement.
Include the number of auditors and the type of experience that would be required.
e. What kind of communications should the internal audit function provide to management regard-
ing the consulting engagement? Be specific as to the type, content, and timing of each planned
communication.
Scenario 3: Brokerage Capability Expansion – International Online Training

BUS would like to quickly expand customer capabilities in the international online equity trading area
but does not currently have the platform or ability to provide this service. To best facilitate this capability,
management feels it would be better to identify and acquire an organization that already has advanced
international online trading capability rather than build it themselves. This approach would provide the
expanded functionality desired, while also providing access to an existing profitable customer base.
E-Trade Financial Corporation (E-Trade) currently provides international online trading to its customer
base and has developed a premier online trading system. By acquiring E-Trade or a similar organization,
BUS management believes BUS could more quickly provide international online trading to its customers
while using this newly acquired capability to augment their retail banking expansion strategy. Manage-
ment has requested that the internal audit function assist them with the identification of potential acqui-
sition targets in addition to E-Trade. Additionally, management would like the internal audit function to
identify the risks related to acquiring one of these targeted organizations.
Management has also asked the internal audit function to help identify the risks associated with transi-
tioning their current customers to the newly acquired international online equity trading system while
also integrating their existing products, services, and capabilities to the brokerage service company they
acquire. At the same time, management would like to introduce current customers of the newly acquired
brokerage firm to BUS’s current retail banking products and services.
Management has concerns that must be addressed if they choose to move forward and are successful in
acquiring E-Trade, such as E-Trade’s problems related to their mortgage business and their banking opera-
tions. Management does not know what degree of risk they would be assuming in these areas if they were to
acquire E-Trade and would like the internal audit function to help evaluate the risks related to the present
state of E-Trade as well as the risks related to migrating out of the known problem area.
Scenario 3: Activities
1. Management has asked the internal audit function to work with them to create a list of the top
potential acquisition candidates that have online trading capabilities similar to E-Trade. You should
consider organizations with an international footprint that would be good strategic matches for BUS.
Specifically outline the characteristics you believe make them good acquisition targets for BUS.
2. Assuming management selects E-Trade as the best acquisition target, complete the high-level due
diligence checklist that you outlined in scenario 2 based on what you can learn from researching
E-Trade.
CASE STUDIES
a. Identify the five most significant areas of risk for the integration of E-Trade’s international online
equity trading platform into BUS’s services offerings using the illustrative consulting engagement
risk model illustrated in exhibit CS 3-3.
b. Assume that the internal audit function has agreed to perform a blended consulting engagement
intended to advise management on steps to enable a smooth integration of E-Trade’s international
online equity trading platform into BUS’s current retail banking operations. In addition, the inter-
nal audit function has been asked to conduct procedures to monitor and report on the success of
the integration. Outline the internal audit resources that would be needed, including the number
of internal auditors and the type of experience that would be required.
c. What kind of communications should the internal audit function provide to management regard-
ing the consulting engagement described in b. above? Be specific as to the type, content, and
timing of each planned communication.

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CASE STUDIES

LEARN ING OB J ECTIVES

PERFORMING CONSULTING ENGAGEMENTS

Engagement Work Program: Client Data Conversion

EXHIBIT CS 3-1 (cont.)

Record of Work Done:

From: Lenny F. Moritz

Client Data Conversion Project

■■ Data Conversion Methodology

Scenario 3: Brokerage Capability Expansion – International Online Training

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