e-Vision – Business Models, Business Risks and Audit Risk Assessment

e-Vision – Business Models, Business Risks and Audit Risk Assessment Authors: J. Efrim Boritz and Theophanis Stratopoulos The University of Waterloo Discussant: Glen Mazur, CA∙CISA BDO Dunwoody LLP

Strengths • Overall a solid case with excellent class room potential • Easily scalable for difficulty • Potential Drawbacks • Lack of material surrounding internal controls • Financials are over-simplified with ambiguity • Lack of information surrounding management’s abilities and internal capabilities; risks of process change is hard to assess given facts Evaluation of Case Content

Strengths • Overall a good coverage of key issues • Depending on course background of students relatively good in-depth coverage of the issues • Potential Drawbacks • No discussion of potential severances or other unaccrued liabilities • Many software companies have remote connections to customers – would be excellent place to introduce IT controls to students Evaluation of Teaching Notes - General

Strengths • Very good coverage of HIPAA risks • Deferred costs was a good discussion point • Potential Drawbacks • HIPAA has right to audit; what critical procedures should we verify to ensure no impairment to receivables or future revenues • External verification of compliance; if not, potential liabilities for breaches of security Evaluation – First Challenge

Strengths • Emphasis on top line revenue was very valid • Megers and acquisitions creating valuation of intangibles was good • Potential Drawbacks • No discussion of economic downturn in US, healthcare plan coverage, etc. • No discussion of US interest rates and what affect this might have on cash flow discounting for impairment testing • No discussion on unaccrued sales commissions; my experience has found end-of-contract payouts unaccrued Evaluation – Challenge 2

Strengths • Solid point re: valuation of shares taken as a lot of students not likely familiar with non-public share valuations • Good discussion of NMT’s (as presented) • Potential Drawbacks • No discussion of monitoring %ownership of customers; for small companies could create significant influence issues • No discussion re: potential other NMT’s Evaluation – Challenge 3

Strengths • R&D capitalization was key to this area • Point of resource allocation was valid but 100-50% fee reduction seemed large; if anything like a prof. Services firm, billing rates would be moved down accordingly • Liked incorporating IT strategic plans into discussion; however (see below) • Potential Drawbacks • If billing rates used, amount charged per project can be skewed with cheaper labour on some, affecting margins, COGS, and inventory • Strategic IT requires large capital; can e-Vision meet these needs or will they require financing for the first time – then risk of cash flows, covenants Evaluation – Challenge 4

Excellent case to highlight several auditing issues in an IT intensive business • Potential to add an extra level of complexity to the decision making model – what area’s of risk, audit assertions affected and potential audit procedures Concluding Thoughts

e-Vision – Business Models, Business Risks and Audit Risk Assessment