Reference no: EM133373431

Case Study: A newly promoted Audit Manager was hired at a firm specializing in manufacturing farming equipment. The primary market that this Canadian based company is directing its efforts is Eastern European nations such as Russia, Hungary, Turkey, Czech Republic, and Serbia. Equipment sales to these emerging markets represents close to 60% of all revenues. The remaining 40% is primarily the United States, and Canada. In terms of profitability however, net profits are much higher in North America. A primary business objective in this past year was to look as ways to reduce operating expenses attributable to the Eastern European markets. Some of the main cost drivers affecting profitability in Eastern Europe includes heavy tariffs, local taxes (the company has sales support offices in all these European nations), and shipping costs. This year's audit plan will heavily focus on addressing these issues. As well, it an important year since the firm will be seeking additional investment capital from the issuing of public shares.

Other issues and notes:

As a result of targeting a market of customer in Europe, the firm invested heavily in a marketing campaign. Advertising and marketing expenses rose over 40% in the past year. There were also some allegations made that many of these expenses incurred were for non-business use by the marketing department.
In order to provide quality customer service especially in Europe, the firm set up an information line whereby customers could call a 1-800 number and get information on equipment operating support (after purchase).
Further, in order to expand market presence, the firm invested in the development and implementation of new information systems enabling more enhanced supply chain management. In essence, the firm needed to obtain a wider variety of suppliers of raw materials (steel, engines, etc.)

Question:

Describe three key strategic risks that should be considered in this year's audit plan of engagements.
Identify very clearly three audit engagements to address the risks you noted in Part A above, with areas of objectives and scope with sufficient description to withstand the scrutiny of the Audit Committee. Include a brief description / rationale as to why you recommend this engagement be included in the annual audit plan.