VITALOGISTICS questions

VITALOGISTICS questions
9. At year-end, VITALOGISTICS has three types of receivables outstanding: (a) receivables from end-users, (b) the Canadian receivables, and (c) vendor receivables. Evaluate KPVI’s approach to auditing each of these receivables.
10. Evaluate KPVI’s handling of issues arising subsequent to year-end and its reporting choices.

Al also found that the company’s senior management comprises Carl Bush, the CEO and chairman of the board; Catherine Johnson, the COO; and Charles Glassman, the CFO. All three have been with the firm for two decades. The Board of Directors includes Carl, the dean of the local university’s college of business, and three others, all with significant business experience.
Al contacted the prior auditors and spoke specifically to Mr. Sevilla, who was not surprised that VITALOGISTICS was considering a new auditor. He had audited the company for many years but, with his impending retirement and possible sale of his partnership interest, he could understand why VITALOGISTICS would seek a larger audit firm. Sevilla expressed no major concerns about the integrity of key management personnel, although he noted that occasionally the CFO adopted aggressive accounting methods. He mentioned that the CFO had been willing to ‘‘book’’ any proposed audit adjustments, which tended to be concentrated in estimates and new transactions where initial accounting policy had to be established. Sevilla remarked, however, that the company’s accounting staff seems to be stretched thin.
Al felt fortunate because VITALOGISTICS looked similar to MaxPar, another KVPI publicly traded client, which allowed him to reason that the VITALOGISTICS audit parameters (staff, fees, risk analysis, audit programs, audit milestones) should be set approximately equal to those for MaxPar. This discovery allowed him to complete the proposal and to forward it to Andy within four days. The highlights of the proposal were that the audit would be completed by March 15, 20X5, and the audit fee would be $5 million (MaxPar’s audit fee is $6 million).
The next morning, Andy called Carl and relayed the information that Al had provided. Carl accepted the proposal and VITALOGISTICS became a client. Al then drafted an engagement letter that was mailed to the chairman of the client’s audit committee. The engagement letter clearly set forth the arrangements concerning the predecessor auditor, the fees, and the timing of the engagement.

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