Topic – Background:
As discussed in the early chapters of our textbook, and specifically in Chapters 4 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. In addition, auditors must
assess client specific risks in planning their audit for each 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
PricewaterhouseCoopers LLP PwC”) based in Orange County and my firm continues to serve as
the Independent Registered Public Accounting Firm. The Company has a 12/31 year-end and the
audit for the 12/31/2021 audit has been issued in February 2022.
The name of the Company is Emerald Holdings Inc (“Emerald”). The Company is the business
of organizing and conducting trade meetings and conferences and other marketing support in
several industry verticals. The Company has two reportable operating segments: Commerce and
Design and Technology.
Emerald’s common stock trades on the Nasdaq Global Market under the symbol “EEX”.
Emerald’s public 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 or also at the
Emerald website under investor relations.
EDGAR Instructions: Go to www.sec.gov and begin your search by entering Emerald’s
name or ticker symbol at the “EDGAR | Company Filings” search box and selecting Emerald.
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 PwC and are assigned to the upcoming fiscal 2022
(year ending December 31, 2022) audit of Emerald.
In order to get familiar with the entity, you are requested to read information about the
client. At a minimum, your supervisors ask you to read the most recent Annual Report on Form
10-K (year ended December 31, 2021, as filed on February 24, 2022), Proxy Statement
(referenced as the DEF14A not yet filed), and fourth quarter 2022 earnings release and related
Form 8-K well as other periodic and/or event reports (8-Ks) on file as necessary, if any. You
may also find it worthwhile to perform a Google, Yahoo, or other search to find information on
Emerald; and/or visit the Company’s website.
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/memo for the planning section of the audit working papers
for the 2022 fiscal year that discusses the following:
COMPANY RISKS:
➢ Enterprise Risk / Business Risk– those risks that affect Emerald’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. As an example, as noted in the
Company’s Form 10-K they have been significantly impacted by the COVID-19
pandemic and have a history of goodwill/ intangible impairments.
➢ 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
[redacted]’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 our Audit
Risk?
AUDITOR CONCERNS:
➢ Engagement Risk – those concerns that we, the auditors should consider as we review
our client retention decision for the 2022 fiscal year-end audit. Have there been any
changes in the environment since completion of the December 31, 2021 audit? What
factors should we at PwC consider in making our retention decision for the 2022 audit?
After all, we need to manage our own Business Risk once we have agreed to continue
with the audit of Emerald. As and example things to consider, would include changes in
executive management, the board of directors, or changes in the business environment,
Company’s debt credit rating etc?
➢ 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. Consider the guidance of pages 225 through 228 of the textbook.
Also consider company financial guidance of future earnings that are provided to
investors and what are the key metrics that wall street consensus estimates are based on
(net income or other metrics such as EBITDA).
➢ Fraud Risk – the risk that management may intentionally prepare financial statements
that are materially misstated and/or omit key disclosures AND/OR that there may be
misstatements resulting from misappropriation of assets (Chapter 6). Giving
consideration to Fraud Risk Factors, such as Incentives/Pressures, Opportunities and
Attitudes/Rationalization as described in Appendix 6B to Chapter 6, what specific risks,
or situations, would you expect to identify from/contribute to a brainstorming session
with members of the engagement team that should be evaluated as part of our audit? Also
think about the presumed fraud risks specified in Statement of Auditing Standards No.
99.
➢ Audit Risk – the risk that we could issue an unqualified/unmodified audit opinion on
financial statements which include a material misstatement (Chapters 2 and 5). Giving
consideration to materiality and fraud risks (above), and other historical areas of audit
focus/ risk, what are the specific areas on which we should focus to reduce our audit risk
to an acceptably low level?
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 6 pages, typed, double-spaced (assuming a 12-pitch
font). Please do not find yourself writing more than 8-9 pages of narrative. CAUTION: 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 Emerald 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 previous 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 PwC to discuss this project.
Grading:
This assignment represents 80 of the possible 500 grade points for this class (16%) and
therefore should be given appropriate attention.
As noted in the syllabus, your paper will be graded for coherence, conciseness, clarity
and use of Standard 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 or ‘in-line referenced’, 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.