ACC-402-85
Section #12032
Professor Wayne Pinnell
Spring 2017
WRITING ASSIGNMENT GUIDELINES
Assignment Passed Out: February 27, 2017
Assignment Due Date: April 24, 2017
Topic – Background:
As discussed in the early chapters of our text, auditors need to assess many risks when
accepting a new audit engagement or determining that it is appropriate to retain an audit client
for each subsequent year.
This writing assignment will, therefore, be a case study for you to consider several of
these risks and the planning attributes for a real company; one that happens to be a client of
Haskell & White, and one where I currently serve as the Engagement Partner.
Natural Alternatives International, Inc. (“NAII), headquartered in Carlsbad, California
(San Diego County) is, as per its Annual Report on Form 10-K for the year ended June 30, 2016,
“[is] a leading formulator, manufacturer and marketer of nutritional supplements. [Their]
comprehensive strategic partnerships with [their] customers offer a wide range of innovative
nutritional products and services to our clients including the following: scientific research,
clinical studies, proprietary ingredients, customer-specific nutritional product formulation,
product testing and evaluation, marketing management and support, packaging and delivery
system design, regulatory review, and international product registration assistance.
As [their] primary business activity, [they] provide private-label contract manufacturing services
to companies that market and distribute vitamins, minerals, herbal and other nutritional
supplements, as well as other health care products, to consumers both within and outside the
United States. [They] also own a patent estate related to the ingredient known as beta-alanine,
which is primarily commercialized through the direct sale of this raw material under [their]
CarnoSyn® trademark.”
NAII has manufacturing facilities it operates in San Diego County and, through its whollyowned subsidiary, Natural Alternatives International Europe S.A. (NAIE), they have operating
facilities in Manno, Switzerland.
NAII’s common stock trades on the Nasdaq Global Market under the symbol “NAII”.
NAII’s filings with the Securities and Exchange Commission (SEC) can be found at the
SEC’s website through a search of the EDGAR archives at:
http://www.sec.gov/edgar/searchedgar/webusers.htm.
EDGAR Instructions: If you go to the SEC’s homepage at www.sec.gov, begin your
search by entering the Company’s Name in the blue “Search EDGAR” search box down on the
right side. Entering the name will produce a list of documents filed by the Company with the
latest filing at the top of the list.
Topic – Assignment:
Assume that you have just joined Haskell & White and are assigned to the upcoming
fiscal 2017 (year ending June 30, 2017) audit of NAII. Since we were engaged as auditors, we
have completed the audits of the fiscal 2015 and 2016 financial statements.
In order to get familiar with the entity, you are requested to read information on the
client. At a minimum, your supervisors ask you to read the most current Annual Report on Form
10-K (year ended June 30, 2016, as filed September 19, 2016), Proxy Statement (referenced as
the DEF14A, as filed October 21, 2016, the most current Quarterly Report on Form 10-Q (QE
December 31, 2016, filed February 14, 2017) as well as other periodic (Qs/Ks, etc.) and/or event
reports (8-Ks) on file as necessary. You may also find it worthwhile to perform a Google,
Yahoo, or other search to find information on NAII.
Based on the information you find in the Company’s filings with the SEC, and/or any
other resource you deem appropriate (such as industry information, news reports, company
website, etc.) write a narrative for the planning section of the audit working papers for the
2017 fiscal year that discusses the following:
COMPANY RISKS
Enterprise Risk / Business Risk– those risks that affect the Company’s operations and
overall organizational activities. In preparing this section, you are primarily to focus on
the nature of the Company’s business and the related environmental factors which affect
it, and your perceptions of the inherent risk factors involved.
Information Risk – those risks of disseminating misstated information to users of the
financial statements. In preparing this section, consider who the potential users are of
Auxilio’s financial statements (known, foreseen, and foreseeable users – See Textbook
Chapter 20, discussion on pages 680-685) and those areas that may be (more) susceptible
to risks in reporting. What areas might require special attention during our audit so that
we minimize our Audit Risk?
AUDITOR CONCERNS
Engagement Risk – those concerns that we, the auditors should consider as we review
our client retention decision for the 2017 fiscal year-end audit. Have there been any
changes in the environment since our last audit? What factors should we at Haskell &
White consider in making our retention decision to continue on with the 2017 audit?
After all, we need to manage our own Business Risk once we have agreed to continue
with the audit of NAII.
Materiality – the magnitude of a misstatement or omission that could affect the user of
the Company’s financial statements and related data. Without trying to calculate any
“value” for materiality, discuss your observations about the Company that may affect
your views on the “qualitative aspects” that should be considered for the level of
materiality to be used for purposes of conducting the audit. Consider those
balances/transaction cycles you consider to be significant as well as trends, ratios, or
other information that would have a bearing on your determination of materiality for
purposes of the audit.
Audit Risk – the risk that we could issue an unqualified/unmodified audit opinion on
financial statements which include a material misstatement. Giving consideration to
materiality (above), what are the specific areas on which we should focus to reduce our
audit risk to an acceptably low level?
You are not charged with reaching a conclusion in any of these areas but to identify the key
items affecting the decisions to be made by your supervisors.
Guidance:
Papers should be a minimum of 4 pages, typed, double-spaced (assuming a 12-pitch
font). Please do not find yourself writing more than 6 pages of narrative. While there may be
many details and “sub-topics” you wish to discuss in your presentation, a better approach will be
to focus on a few key topics with well-developed supporting discussion/arguments.
Your paper is to be based on your analyses of the specific conditions of NAII and your
knowledge of auditing gained through early chapters in our text. The concepts were introduced
in Chapters 1-4. However, you may find information useful in future class discussions and or
later chapters of the text (some information for which I encourage you to read ahead). Your
ideas need to be clearly identified and supported throughout your presentation.
Your paper should be presented in the format of a file memorandum.
Please note that while I have working knowledge of this Company, I cannot discuss
anything with you that is not part of the public disclosures. Should you need assistance
understanding what you are reading in the public documents, please ask. Further, you cannot
contact anyone at the Company or any other person at Haskell & White to discuss this project.
Grading:
This assignment represents 100 of the possible 500 grade points for this class (20%) and
therefore should be given appropriate attention.
As noted in the syllabus, your paper will be graded for coherence, conciseness, clarity
and use of Standard English. Of course, your paper should adequately address the topic
assigned. A formal bibliography is not required. However, if you quote a source directly
(such as a news article, textbook, information on websites or other sources), your source
should be footnoted, at a minimum. Your work should also be original – not plagiarized from
news articles or copied from classmates (after all – our profession is built on the foundation of
ethics and integrity).
Now, a few words on the standards set at the outset of this paragraph.
Coherence – Requires that ideas be arranged logically in that the ideas are related.
Conciseness – Achieved by using as few words as possible to make your point, while not
omitting key ideas or supporting arguments.
Clarity – Essentially, your paper should be understandable and readable. Clarity requires
the use of words with specific and precise meaning. Simple sentence structure will assist with
both clarity and coherence.
Standard English – Requires the use of proper punctuation, capitalization, spelling and
vocabulary. Please use the spell and grammar check functions in your word processing software.
Due Date / Submission:
Papers are due during class scheduled for Monday, April 24, 2017. In other words,
papers are due before the end of the scheduled class on April 24, 2017, (by 9:45 PM). Papers
can be submitted in hardcopy form or electronically via e-mail to my daytime office at
wpinnell@hwcpa.com.
Grade Penalties will be assessed at the rate of 20% for each day the paper is late.
(Therefore – the best grade you can receive is an 80 if the paper is 1 day late, a 60 if the paper
is 2 days late, etc.)
Since you are receiving this assignment with 8 weeks of preparation time,
there will be no extensions of time granted to complete this assignment.