Case Study: Carewell Connections Ltd.

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Date: March 9, 20X0 To: Audit Manager From: Ryan O’Leary RE: Audit Plan – Carewell Connections (Canada) Ltd. (CCC) Information has recently come to my attention from a former CCC employee that might affect the audit plan regarding CCC. As planning for this audit is scheduled to begin next week, I would like to bring it to your attention. We have learned from the Vancouver office that CCC might be having cash flow issues as there have been some employees laid off and severance packages were paid. Another piece of information learned was that at least one of the severance packages paid was paid by Worldwide Connections Inc. Effect on Audit Plan Audit risk of CCC should be reassessed in regard to the cash flow problems…show more content…
Should the company be having cash flow issues, additional disclosure in the financial statements may be required. This would be the case if a ratio was in violation of a banking agreement or debt covenant and the debt could then be called at any time, financial statement users would need to be aware of this. Ethical Issues The Vancouver office has asked me to call CCC regarding the employee’s employment status with CCC and why the payment was made from Worldwide. This poses a couple of ethical issues as there is a potential conflict of interest as I would be doing work for both the audit of CCC as well as the ex-employee from CCC regarding gathering information for her personal income tax return. This also poses a confidentiality breach. Although Erin, the ex-employee has given permission to the Vancouver office to contact CCC to obtain more information about the nature of the severance payment received, CCC has not given our office consent to discuss this with the Vancouver office nor Erin. I believe that this is not something that we should be dealing with and either Erin or Carmen from the Vancouver office should contact CCC directly. We should not have any part in the dealing of trying to figure out why the payment was made from Worldwide on behalf of Erin as this could put our audit at

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