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Always Logistics Case Study Essay

Always Logistics is looking to perform a forensic accounting audit on their financial statements, in particular to accounting periods ended in the last five years. Mr. Jim Gallbally, has claimed authority to oversee the fraud concern over the Company’s profit-sharing incentive for its administrative-level employees via a whistleblower account, and this would require a study on their sales revenues data and their internal control systems. The intention of the assurance engagement is to supplement the fraud concern being raised by Mr.Gallbally to the senior management of the Company.

Moreover, he intends to apply a ‘full force of the law’ to those staff who have ‘purposefully inflated revenue inflow for personal financial gain’, should the claims were to be founded. I am expecting your full interest with this engagement, and you may extend your intention to this engagement via the contact details that I will provide. I have attached the details of my initial discussion with the client and our conditions of acceptance prior to the undertaking of such engagement.

Attachments: Details of the Interview conducted with Mr. Jim Gallbally, May 2010; Conditions of Acceptance for the Assurance Engagement, May 2010 Attachment 1: Details of the Interview conducted with Mr. Jim Gallbally, May 2010 • A substantial annual performance bonus is paid to each divisional manager based on individual outputs as well as total company performance. • There is a profit share scheme for all non award (administrative) level employees of Always. • The Chairperson of Always is Margot Hellicar.

• A stock broking firm, Warm, Symes and Co is actively canvassing senior employees of Always to invest in the company by taking out loans which may be subject to margin calls. Some board members have been known to speak favourably of such loans. A healthy demand for Always stock has seen their share price outperform the market index for the past four years. • Always is divided into divisions based on each state or territory. Depots are located in all states and the Northern Territory with Canberra depot part of the NSW operation.

These depots have about 5-8 staff in each location being a senior manager, two financial or clerical staff with the rest being award level depot receipt and delivery staff. • Head Office in Brisbane has 10 administrative staff and is where the CEO and CFO are located, along with the computer system and all the company financial records. • The company has had some tight cash flow issues over the past few years but always manages to survive though the support of their bankers or through finding new delivery contracts, particularly in the Northern Territory and North West Queensland. Conditions of Acceptance

1. The report would consist of the assessment of the Company’s internal control systems, and the soundness of the financial statements and supplementary disclosures issued in the last five years, and will not be of opinion of the auditors. Should there be an opinion that will arise in the course of the report and analyses, a supplementary report will be issued in compliance of the auditing standards; 2. The report would consist of material factors to the actual bonuses amounts and managerial judgement with regard to the issuance of annual bonuses to its administrative-level employees;

3. The auditors will remain their professional independence with regard to the conduct of the audit, as in accordance to section 3. 5 of Professional Independence code of the Forensic Accounting Standards (APES 215); 4. The report will be in compliance with the International Auditing Standards and Forensic Accounting Standards (APES 215), and determine the accounting principles compliance in relation to the Australian Accounting Standards Board; 5.

The auditors will maintain their professional competence and take due care in the performance of their work in accordance with Section 130 Professional Competence and due Care of the Code (3. 11) of the Forensic Accounting Standards (APES 215); 6. The confidential information acquired or have deliberated during the course of the audit shall only be used in the professional performance of the audit done and therefore proper permission must be acquired in accordance to Section 140 of the Forensic Accounting Standards (APES 215). ENGAGEMENT LETTER

To the Chairman of the Board Margot Hellicar (or the appropriate senior management or board of directors) of Always Logistics: As requested by several of your shareholders, notably Mr. Jim Gallbally, we will conduct an audit of Always Logistics’s financial records, in particular, your cash flows, sales revenue records and notes to the financial statements for the last five years then accounting year ended December 31. We would like to express our acceptance and have understood the terms of this engagement by the issuance of this letter.

Our audit will be conducted with the intention of providing an objective perspective on the financial statements and the financial performance of your Company for the last five years from accounting period ended December 31, 2009, and the recent concerns pertaining to your profit-sharing incentive lauded by significant numbers of your shareholders. We will accept the engagement offered and conduct the requested audit in accordance to the following accounting and auditing standards: the International Auditing Standards, the Accounting Professional and Ethics Standards (APES), and the International Standards of Assurance Engagements.

The following will be used as to outline the engagement to be undertaken, and that the audit is in conforme with auditing criteria that may or may not be contested in a legal proceeding. The following is also to properly address the allegations of your administrative divisions misconstruing financial numbers that may be material to possible misstatements on your sales revenues and your overall financial status for the last five years.

The audit will include examining evidence to be acquired supporting the amounts and disclosures to the sales revenues, and also the data being used of your administrative divisions on a test basis, and assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. With regard to the possible limitations and the nature of the test that will be conducted in the duration of the engagement, there will be auditing risks that there will be misstatements that may be material enough will not be detected.

This is due to the inherent limitations that has and is present of the accounting and internal control systems your company has adopted for your business operations. As such, we would like to express our intention to use audit reports from previous auditors, work of persons of interest, or your internal auditors, if there were any conducted prior to this engagement, for comparison purposes and to alleviate us in confounding such allegations lauded against the financial status of your Company.

However, we would like to stress that because of the necessity that may arise to use previous audit reports or documents of a similar standing, the overall assessment will now be our responsibility, and will be subject to any repercussions, legal or otherwise, towards the result of the assessment. In addition to our auditing report for the purpose of this engagement, we expect to provide you with a separate letter or document on any material weaknesses in the accounting and internal control systems that your company has adopted that we have come to be of concern of in the duration and the completion of our audit.

However, we would like to restate that as this is not the purposeful intention of the audit, this supplementary document may or may not be of use that may demonstrate the effectiveness of your current accounting and internal control systems, and that it would be your decision on whether to act upon our observations for the purpose of amending or ratifying your current accounting and internal control systems, with regard to the conclusion of the engagement.

In compliance with the Forensic Accounting Standards, the working papers prepared in conjunction with our audit are the sole property of the auditing firm and constitute confidential information that is privy to the firm and to your Company. They will be retained by our auditing firm in accordance with our firm policies and procedures. However, we will grant release of the working papers via a request from a regulator or a person of authority in the context of the rule of law.

The regulator may produce photocopies or replications of the report and may ultimately decide to distribute the copies or replications to other parties of interest, including government agencies. The responsibility for the preparation and adequate disclosure of the financial statements to be procured as requested is that of the management of Always Logistics, either by its financial or accounting department, the board of directors, or any outfit or department that represents the Company.

This includes any maintenance of adequate accounting records and internal controls, the selection and justification of the accounting policies to be applied, the application of accounting policies, the safeguarding of assets of the company, and other supplementary or aggregate data that would further assist us in our audit. In line with this, we duly request a written confirmation from you, the board of directors or the senior management, regarding representations concerning the audit to be conducted in the matter of transparency and the rule of law.

Should you intend to publish our comprehensive and conclusive audit report on your financial statements and administrative operations with regard to the allegations of sales revenues padding activities, we require you to produce a printers’ proof or masters’ copy for review or approval prior to the final print and distribution of the said report.

We are looking forward to the company’s full cooperation from your staff and/or personnel who will be involved for the procedural completion of this engagement, and that we fully entrust the responsibility from your good company that all requested and mandatory documents, including its supplementary or aggregate papers, and systems access will be made available to us with regard to the conduct of the engagement.

Our auditing fees, which will be classified as working progress or works in progress in your accounting journals and general ledger, will be based on the time that will be spent by our accountants assigned for the procedural completion of the engagement plus outright yet necessary expenses. We will use the Company’s staff at any possible time or event to assist us in the conduct of the schedules to be followed as per process regarding the audit and the analyses of the accounts and business units in question.

We believe that this would alleviate us with the time requirements, the timely or rather immediate conclusion of the engagement, and the savings that will be generated and beneficial for you with regard to the audit fees. This document will be effective for the time being of the engagement unless the agreed party will be making changes, cancel the engagement, or if the said engagement will be interrupted by a rule of law. Kindly affix your signature and forward the attached copy of this document to signify your understanding and agreement of the engagement.


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