01/28/2011 Meeting - Risk
- 1. Risking it all…but you don’t have to www.pwc.com Presenter Kristin Rivera, Partner
- 2. PwC An Important Note: • These materials, and the oral presentation accompanying them, are for educational purposes only. • The views expressed in this presentation are ours and do not necessarily represent the views of PricewaterhouseCoopers. Slide 2
- 3. PwC Setting the stage… You are in a meeting with the Audit Committee when you find out that two weeks ago the CEO suspended senior management of a material subsidiary following the discovery of bribes paid to government officials in order to win contracts. In addition, four contracts at the subsidiary have improper revenue recognition. The Audit Committee Chair confirms that the company’s law firm has been investigating the allegations, including whether there was any knowledge of the bribes by corporate management. This same law firm is also currently working on a prospectus for a new stock offering for the company. Slide 3
- 4. PwC The characters… Slide 4 Alistair Chisholm CL Group Audit Committee Chair Michael Brindley CL Group Audit Committee Member Gordon Carey CL Group Audit Committee Member Graham Harris CL Group Chief Executive Officer Eric Merchant Legal Counsel, Bradman & Ellis Bill Crawford Independent Auditors, Partner Caroline Barre Independent Auditors, Manager
- 5. PwC Crucial decisions… Slide 5 Investigation scope Narrow vs. wide CFO e-mail Smoking gun vs. normal managerial communication Retain counsel Law firm that knows the company best vs. new law firm Time Design procedures to fit time allotted?
- 6. PwC Risking it all – Part I
- 7. PwC Facilitated discussion How would you advise the Audit Committee on the following topics: - Investigation Team ◦ Is the Law Firm sufficiently objective? ◦ Is it appropriate for the CEO to oversee the investigation? ◦ Should internal audit be involved? If so, how? - Scope and Procedures ◦ Email review ◦ Depth and breadth of contract review ◦ Interviews (local management refusing to be interviewed) Slide 7 Risking it all – Part I
- 8. PwC Facilitated discussion cont. 1. How would you manage the need or desire for further investigation with the upcoming earnings release and secondary offering? How would you recommend managing the balance of financial/market implications with completeness of investigation? 2. Where should the company draw the line with regard to the investigation scope? Slide 8 Risking it all – Part I
- 9. PwC The reality… • Widespread revenue issues not isolated to one subsidiary • CFO involvement is much greater, constituting management fraud • Financial statement restatements • Major regulatory investigation Slide 9 Disaster! Risking it all – Part I
- 10. PwC Risking it all – Part II
- 11. PwC Facilitated discussion 1. What should the external auditor’s role be in connection with the investigation? What should the external auditor be thinking about? 2. When should you expand the scope beyond the issued raised in the initial allegation? Where do you stop? 3. What additional recommendations would you make to the CL Group CEO and AC on how to improve the Control Environment of the company. 4. Even after the issue was first discovered via the hotline, if things were handled differently by the CEO and AC, how might things have turned out differently for the company and the players? Slide 11 Risking it all – Part II
- 12. PwC How it could have been…. Epilogue Slide 12 Risking it all – Part III
- 13. PwC Group Discussion How were the results different in this scenario and what were the actions that led to these? How can you apply these lessons to your own organization or practice? • How aware is your team with similar/complex matters? • How might your plans change in future? • Is there a need for different communication? • Are you teaming with the right people? • Are you taking the opportunity to add more value? Slide 13 Risking it all - Part III
- 15. © 2011 PricewaterhouseCoopers LLP. All rights reserved. "PricewaterhouseCoopers" refers to PricewaterhouseCoopers LLP or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate and independent legal entity. The information contained in this document is for general guidance on matters of interest only. Before making any decision or taking any action, you should consult a PricewaterhouseCoopers professional. Thank you for attending today’s session Kristin D. Rivera Partner, PwC (415) 498 6566 kristin.d.rivera@us.pwc.com