Topic - Background:
WRITING ASSIGNMENT GUIDELINES
As discussed in the early chapters of our text, and specifically in Chapters 1 through 6, 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 where I served as the Engagement Partner through the June 2019 year-end audit.
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, 2019, “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 [their] 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 and proprietary formulations of this raw material under [their] CarnoSyn® and SR CarnoSyn® trademarks.”
NAII has manufacturing facilities it operates in San Diego County and, through its wholly- owned subsidiary, Natural Alternatives International Europe S.A. (NAIE), they have operating facilities in Manno, Switzerland.
NAII’s common stock tradeson 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:www.sec.gov
EDGAR Instructions:If you go towww.sec.gov, begin your search by entering NAII’s name or ticker symbol at the “EDGAR | Company Filings” search box and selecting Natural Alternatives. The EDGAR Search Results will display a historical listing of the Company’s filings. Click through on the “Documents” indicator for the selected filing and you will then be led to a listing of the main body and exhibits for the filing selected.
Topic – Assignment:
Assume that you have just joined Haskell & White and are assigned to the upcoming fiscal 2020 (year ending June 30, 2020) audit of NAII.
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 currentAnnual Reporton Form 10-K (year ended June 30, 2019, as filed September 24, 2019), Proxy Statement (referenced as the DEF14A, as filed October 31, 2019, the most current Quarterly Report on Form 10-Q (QE December 31, 2019, filed February 11, 2020) 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 papersfor the 2020 fiscal year that discusses the following:
Enterprise Risk / Business Risk– those risks that affect NAII’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 NAII’s financial statements (known, foreseen, and foreseeable users – See Textbook Chapter 4) 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 ourAudit Risk?
Engagement Risk– those concerns that we, the auditors should consider as we review our client retention decision for the 2020 fiscal year-end audit. Have there been any changes in the environment since completion of our June 2019 audit? What factors should we at Haskell & White consider in making our retention decision for the 2020 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.
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 1-6. 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 as a recent audit engagement partner, I cannot discuss any details about the Company 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 forcoherence,conciseness,clarityand use ofStandard 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.