ACCA AAA ^UK Syllabus F. Other Assignments - Key performance indicators - Past Papers ^{2 / 3}

Your firm has also been engaged to perform a separate assurance engagement on Faster Jets Co’s corporate social responsibility (CSR) report. This engagement will be performed by Brown & Co’s specialist social and environmental assurance department and there are no ethical threats created by the provision of this service in addition to the audit. An extract from the draft CSR report is shown below:

Required:
(i) Discuss the difficulties in measuring and reporting on social and environmental performance; and (4 marks)

(ii) Recommend the procedures to be used to gain assurance on the validity of the performance information in Faster Jets Co’s CSR report. (6 marks)

You are responsible for the audit of Osprey Co, which has a financial year ended 31 May 2012. The audit engagement partner, Bill Kingfisher, sent you the following email this morning:

To: Audit manager
From: Bill Kingfisher, audit engagement partner, Osprey Co
Regarding: Environmental incident

Hello

Osprey Co’s finance director called me yesterday to explain that unfortunately over the last few weeks, one of its four factories leaked a small amount of toxic chemicals into the atmosphere. The factory’s operations were halted immediately and a decision has been taken to permanently close the site.

Though this is a significant event for the company and will result in relocation and some restructuring of operations, it is not considered to be a threat to its going concern status. Costs of closure of the factory have been estimated to be $1•25 million, which is expected to be material to the financial statements, and a provision has been set up in respect of these costs.

Osprey Co is keen to highlight its previous excellent record on socio-environmental matters. Management is preparing a report to be published with the financial statements which will describe the commitment of the company to socio-environmental matters, and state its target of reducing environmental damage caused by its operations.

The report will contain a selection of targets and key performance indicators to show performance in areas such as energy use, water consumption and employee satisfaction. Our firm may be asked to provide an assurance report on the key performance indicators.

I am asking you to prepare briefing notes for my use in which you:

Discuss the difficulties in measuring and reporting on environmental and social performance.
(4 marks)

Thank you.

Required:

Respond to the partner’s email

You are a manager in Newman & Co, a global firm of Chartered Certified Accountants. You are responsible for evaluating proposed engagements and for recommending to a team of partners whether or not an engagement should be accepted by your firm.

Eastwood Co, a listed company, is an existing audit client and is an international mail services operator, with a global network including 220 countries and 300,000 employees. The company offers mail and freight services to individual and corporate customers, as well as storage and logistical services.

Eastwood Co takes its corporate social responsibility seriously, and publishes social and environmental key performance indicators (KPIs) in a Sustainability Report, which is published with the financial statements in the annual report.

Partly in response to requests from shareholders and pressure groups, Eastwood Co’s management has decided that in the forthcoming annual report, the KPIs should be accompanied by an independent assurance report. An approach has been made to your firm to provide this report in addition to the audit.

To help in your evaluation of this potential engagement, you have been given an extract from the draft Sustainability Report, containing some of the KPIs published by Eastwood Co. In total, 25 environmental KPIs, and 50 social KPIs are disclosed.

You have also had a meeting with Ali Monroe, the manager responsible for the audit of Eastwood Co, and notes of the meeting are given below.

Notes from meeting with audit manager, Ali Monroe

Newman & Co has audited Eastwood Co for three years, and it is a major audit client of our firm, due to its global presence and recent listing on two major stock exchanges. The audit is managed from our office in Oldtown, which is also the location of the global headquarters of Eastwood Co.

We have not done any work on the KPIs, other than review them for consistency, as we would with any ‘other information’ issued with the financial statements. The KPIs are produced by Eastwood Co’s Sustainability Department, located in Fartown. We have not visited Eastwood Co’s offices in Fartown as it is in a remote location overseas, and the departments based there are not relevant to the audit.

We have performed audit procedures on the charitable donations, as this is disclosed in a note to the financial statements, and our evidence indicates that there have been donations of $9 million this year, which is the amount disclosed in the note. However, the draft KPI is a different figure – $10•5 million, and this is the figure highlighted in the draft Chairman’s Statement as well as the draft Sustainability Report. $9 million is material to the financial statements.

The audit work is nearly complete, and the annual report is to be published in about four weeks, in time for the company meeting, scheduled for 31 January 2011.

Your firm has recently established a sustainability reporting assurance team based in Oldtown, and if the engagement to report on the Sustainability Report is accepted, it would be performed by members of that team, who would not be involved with the audit.

Required:

Identify and explain the matters that should be considered in evaluating the invitation to perform an assurance engagement on the Sustainability Report of Eastwood Co. (12 marks)

You are a manager in Newman & Co, a global firm of Chartered Certified Accountants. You are responsible for evaluating proposed engagements and for recommending to a team of partners whether or not an engagement should be accepted by your firm.

Eastwood Co, a listed company, is an existing audit client and is an international mail services operator, with a global network including 220 countries and 300,000 employees. The company offers mail and freight services to individual and corporate customers, as well as storage and logistical services.

Eastwood Co takes its corporate social responsibility seriously, and publishes social and environmental key performance indicators (KPIs) in a Sustainability Report, which is published with the financial statements in the annual report.

Partly in response to requests from shareholders and pressure groups, Eastwood Co’s management has decided that in the forthcoming annual report, the KPIs should be accompanied by an independent assurance report. An approach has been made to your firm to provide this report in addition to the audit.

To help in your evaluation of this potential engagement, you have been given an extract from the draft Sustainability Report, containing some of the KPIs published by Eastwood Co. In total, 25 environmental KPIs, and 50 social KPIs are disclosed.

You have also had a meeting with Ali Monroe, the manager responsible for the audit of Eastwood Co, and notes of the meeting are given below.

Notes from meeting with audit manager, Ali Monroe

Newman & Co has audited Eastwood Co for three years, and it is a major audit client of our firm, due to its global presence and recent listing on two major stock exchanges. The audit is managed from our office in Oldtown, which is also the location of the global headquarters of Eastwood Co.

We have not done any work on the KPIs, other than review them for consistency, as we would with any ‘other information’ issued with the financial statements. The KPIs are produced by Eastwood Co’s Sustainability Department, located in Fartown. We have not visited Eastwood Co’s offices in Fartown as it is in a remote location overseas, and the departments based there are not relevant to the audit.

We have performed audit procedures on the charitable donations, as this is disclosed in a note to the financial statements, and our evidence indicates that there have been donations of $9 million this year, which is the amount disclosed in the note. However, the draft KPI is a different figure – $10•5 million, and this is the figure highlighted in the draft Chairman’s Statement as well as the draft Sustainability Report. $9 million is material to the financial statements.

The audit work is nearly complete, and the annual report is to be published in about four weeks, in time for the company meeting, scheduled for 31 January 2011.

Your firm has recently established a sustainability reporting assurance team based in Oldtown, and if the engagement to report on the Sustainability Report is accepted, it would be performed by members of that team, who would not be involved with the audit.

Required:

Recommend procedures that could be used to verify the following draft KPIs:

(i) The number of serious accidents in the workplace; and

(ii) The average annual spend on training per employee. (6 marks)