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  • 8/13/2019 Snc Lavalin Final (for Real)


  • 8/13/2019 Snc Lavalin Final (for Real)


    John Molson School of Business ACCO 450

    Reviewed by 2

    Table of Contents

    Table of Contents ..................................................................................................... 2

    1. Team composition and Time Sheet .................................................................. 32. Understanding the Entity and its Environment ............................................... 4

    2.1 Engagement Characteristics ................................................................................. 4

    History Overview .................................................................................................... 5

    Revenue Sources Breakdown .................................................................................. 6

    2.2 Business Risks ...................................................................................................... 7

    3. Analytical Procedures ........................................................................................10

    5. Audit Risk Model ...............................................................................................15

    6. Conclusion ...........................................................................................................20

    References ...............................................................................................................21

  • 8/13/2019 Snc Lavalin Final (for Real)


    John Molson School of Business ACCO 450

    Reviewed by 3

    1. Team composition and Time Sheet

    Auditor: Pomegranate, LLP

    Auditee: SNC-Lavalin Group Inc. For the year ended on December 31, 2012

    Last Name First Name Student ID Signature

    Hatim Jean Pierre 1709046

    Knobovitch Daniel 9340602

    Ly Tan Trung 5499003

    Nessim Nadia 9758496

    Project Member(s) Assigned


    Budgeted Time

    (in hours)

    Actual Time

    (in hours)


    (in hours)

    Understanding the Entity Hatim/Nessim 10 12 2

    Analytical procedures Knobovitch/Ly, Hatim 18 20 2

    Materiality Ly/Nessim, Knobovitch 10 8 -2

    Audit Risk Model Entire Team 15 18 3

    Conclusion Entire Team 1 1.5 0.5

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    John Molson School of Business ACCO 450

    Reviewed by 4

    2. Understanding the Entity and its Environment

    2.1 Engagement Characteristics

    SNC-Lavalin Group Inc. is incorporated under the Canadian Business Corporation Act

    (CBCA) with shares publicly traded on the Toronto Stock Exchange (TSX). As such, annual

    consolidated financial statements are required to be prepared in accordance with International

    Financial Reporting Statements (IFRS) due to security laws (Smieliauskas and Bewley, 2013).

    These statements must also be accompanied by an independent auditors report conducted in

    accordance with Canadian Generally Accepted Auditing Standards (GAAS).

    Management is expected to give a true and fair view of the financial situation of thecompany. In other words, suitable accounting policies are applied consistently using reasonable

    and prudent judgments. The financial statements should be prepared on a consolidated and going

    concern basis. All amounts figuring on these statements are in Canadian currency. Last but not

    least, all companys records are made available to the external auditor.

    Independent auditors attempt to obtain reasonable assurance as to whether the amounts

    and disclosures figuring on the financial statements are free from material misstatement (i.e.

    error or fraud) and within ethical guidelines (Smieliauskas and Bewley, 2013). These audit

    procedures include understanding the organization, its environment and internal control over

    financial reporting.

    Based on the results, an opinion, or the absence of, is expressed as to whether the

    consolidated financial statements are presented fairly, in all material respects. These reports will

    then be filed to the Ontario Securities Commission in a timely manner, normally within 90-120

    days, in order to assist stakeholders, more precisely SNCs shareholders, in their decision-

    making. This engagement is for the fiscal year ending is on December 31, 2012.

  • 8/13/2019 Snc Lavalin Final (for Real)


    John Molson School of Business ACCO 450

    Reviewed by 5

    History Overview

    SNC-Lavalin Group Inc was founded in 1911 by Arthur Surveyer in Montreal under the

    name of Surveyer, Nenniger & Chenevert Consulting Engineers (SNC). The entitys first

    appearance in the international market was in 1963, when it signed a contract to build a train

    station in India. Having enjoyed steady growth, this small office decided to incorporate in 1975,

    changing its name to SNC Inc. As the years passed, SNC became so large that, in 1986, the firm

    decided to go public. However, the most important benchmark in SNCs history is

    unquestionably the merger with Lavalin Inc., the other largest engineering firm in Canada at that

    time, evolving it to SNC-Lavalin Inc.

    Today, as a global leader, SNC-Lavalin is active in multiple sectors such as agrifood,

    aluminum, biopharmaceuticals, hydrocarbons & chemical, the environment, facilities and

    operations management, infrastructure, mass transit, mining and metallurgy and power (SNC-

    Lavalin, web).

    Recent News and Controversies

    SNC-Lavalin was under political fire in the last few years. In fact, the firm was accused

    of fraud, corruption and using false documents (Barnes, web). These allegations implicate SNC-

    Lavalin in several countries. Here are some examples:

    Algeria, where its offices are being raided for a bribery concerning an $825 million contract

    (Seglins and Nicol, web)

    Libya, regarding a $160 million bribe

    Canada , for the construction of the McGill University Health Center (Cousineau and McArthur,


    Furthermore, SNCs top level executives were charged with fraud by Canada and

    Switzerlands anti-corruption investigators which led to their dismissal (Cousineau and

    McArthur, web). According to the World Banks list of 250 firms banned from bidding on global

    project due to fraud and corruption, 117 were from Canada. Among these 117 listed firms, 115

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    John Molson School of Business ACCO 450

    Reviewed by 6

    were SNC-Lavalin and its affiliates (Ligaya, web). In other word, it is without a doubt that there

    is a sharp decrease in investors confidence, which will impact materiality level and the audit


    Revenue Sources Breakdown

    SNC-Lavalin earns profit through multiple sources of revenue, namely from its Services,

    Packages, Operations and Maintenance (O&M) and Infrastructure Concession Investments (ICI)

    (2012 MD&A, web).A breakdown of each category and their respective percentage of total

    revenue are shown in Exhibit 1 below.

    Exhibit 1- Sources of Revenues Breakdown (in thousands)

    Type Revenue % of Total Revenue

    Services $ 3,174,934 39%

    Packages 3,020,400 37%

    O&M 1,330,501 16%

    ICI 565,125 7%

    Total $ 8,090,960 100%

    Service activities consist of engineering services, feasibility studies, planning, detailed

    design, contractor evaluation and selection, project and construction management, and


    Packages include different service activities mentioned above combined with the

    responsibility of providing materials and equipment, and generally involve the actual

    construction activity (2012 MD&A, web).

    Together, these two sectors represent 76% of total revenue from operations. As such, due

    to its multiple sources of revenues and reliance on Services and Packages, SNC is exposed to

    various business risks.

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    John Molson School of Business ACCO 450

    Reviewed by 7

    2.2 Business Risks

    First, services and packages revenues are dependent on signing new contracts. Thesecontracts are often large-scale project awards. Therefore, any negative impact on SNCs image

    may reduce its ability of retaining current or obtaining new projects. These factors include

    failures to meet technical and safety standards, improper behavior of employees or fraud, and

    corruption. These reputational risks have greatly increased with the allegations of fraud and

    bribery in the recent years.Currently, SNC is subject to a variety of ongoing investigations that

    could result in reputational and monetary damages. These litigations inevitably put the company

    at a risk for the investors, as the damages sought are significant in some cases.

    For instance, both the former CEO and the former Executive Vice President of the

    company are currently being held in Switzerland as of April 2012 by order of the RCMP and

    Swiss Authorities. These individuals face charges of fraud in relation to SNCs projects in

    Quebec, Bangladesh, and certain countries in Africa (2012 MD&A, web). Inevitably, SNCs

    senior management and Board of directors must devote significant time to the matters, which

    consequently will distract the company from their daily ongoing business.

    Since SNC is in the business of engineering and construction, it faces design,

    construction and system failures risks. The nature of its business often involves professional

    judgment with respect to the services or packages offered. Simply put, SNC is liable to its

    employees, clients or other parties in the event of these failures. Consequently, the firm is

    vulnerable to more lawsuits and litigations if these failures cause injuries, deaths, business

    interruptions, property and environmental damages which inevitably impacts SNCs corporate

    image. Investors must therefore consider the significant amount of money spent on lawyers and

    advisors, regarding the many risks involved such as lawsuits, and injuries.

    On a different note, SNC operates in a highly competitive industry. Acquiring contracts

    often involves bidding on a construction project. The winner is determined by the lowest bidder

    (reverse auction). Consequently, the entire project is carried out on a predetermined fixed-price.

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    John Molson School of Business ACCO 450

    Reviewed by 8

    In the event that the costs incurred are higher than the tendered price, the discrepancy will reduce

    profit or be forcefully recognized as a loss, possibly causing solvency issues.

    The competitive nature in which SNC operates represents one of its greatest risks. As it

    operates on an international level, the firm must compete with many other large, mid-size and

    small businesses that provide equal services. In addition, similar competition is entering the

    Canadian Market place. Since contract prices are determined by the overall state of markets and

    level of competition, this consequently presents a risk to SNC-Lavalins results of operations

    (2012 MD&A, web).

    As the firm is active in more than 100 countries, foreign contracts are thus vital to SNC-

    Lavalins business operations. Foreign involvement is complex due to many factors. Thecompany is exposed to political, environmental, and economical risks when contracting outside

    Canada such as recessions and crises in European countries. Embargoes, terrorist attacks and acts

    of war are also factors that can adversely affect the daily operations of SNC-Lavalin. Weak

    foreign economies are therefore extremely susceptible to risk. Additionally, unstable tax laws

    and other regulations must also be considered. This being said, the company must be very

    proactive in understanding and abiding to the very different environments in which it obtains its


    The next point discusses some of SNC-Lavalins uncontrollable business. Considering

    the company often relies on third party subcontracting. Third party dependency creates

    ambiguity for SNC with the possibility of their inability to meet deadlines and contract

    obligations. The limited control in which the company has over the decisions and operations of

    its third party partners can also be a risk factor that impacts SNCs reputation, business, financial

    condition and results of operations.

    In sum, SNC faces many risks that could adversely affect its operations, financial

    stability, and corporate image both on a national and international level. These risks, although

    some uncontrollable, provide enough evidence for our audit team to understand the possibility of

    Financial Reporting issues, material misstatements, fraudulent activities, corruption, and

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    John Molson School of Business ACCO 450

    Reviewed by 9

    embellishment. Numerous external factors such as their political, economical, and global

    environment contribute to these risks. Inevitably, SNC finds itself to be in a costly position for

    the main purpose of avoiding these risks that inherently affect its business ventures such as its

    ability to acquire future contracts. This being said, global industry conditions, a widely

    uncontrollable factor, proves to be SNC-Lavalins major obstacle.

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    John Molson School of Business ACCO 450

    Reviewed by 10

    3. Analytical Procedures

    Exhibit 2 - Comparison of current and previous year ratios:

    Ratios 2012 2011 Significance of Change

    1. Current Ratio 0.96 1.01

    Slight decrease indicates a potential issue withthe company's ability to pay off currentobligations. However, there is no significantdrop/increase in any of the current assets/currentliabilities accounts.

    2. Days to Sell Inventory 42.44 34.93Increase in inventory turnover means slowermoving or obsolete inventory.

    3. Average CollectionPeriod 53.21 65.31

    A significant decrease in collection periods.

    Perhaps due to new policies and/or discounts forquicker payments.

    4.Debt to Total Assets 78.37% 77.42%

    Minor change, but a generally high ratio whichindicates that the company has taken on largedebts. As such, we can observe that SNCscorporate structure consists mainly of debt ratherthan equity, and such a high percentage puts thenin a position where it is hard to further borrowmoney.

    5. Times Interest Earned 3.70 4.63Large decrease in the company's ability to covertheir interest expense through profits generated.

    6. Profit Margin 3.83% 5.37%

    A large decrease in profit margin, showing that

    the firm is having trouble converting revenue intoactual profit. Several factors such as inflation,and that commodity price increases currencymovement, affecting cost of sales, which reducesSNCsgross profit margin.

    7. Return on Assets 3.22% 4.64%Decrease due to an increase in total assets anddecrease in net income.

    8. Return on Equity 14.89% 20.53%A decline here is resulted from a decrease in Netincome, combined with an increase in equity.


    Liquidity:The decrease in average days for collection shows improvement for firms

    liquidity. However, the decrease in current ratio and the increase days to sell inventory

    display issues in the firm and actions to improve liquidity are necessary.

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    John Molson School of Business ACCO 450

    Reviewed by 11

    Solvency:The leverage is high and increased from prior years. We must also pay close

    attention to the reduction in times interest earned.

    Profitability:Although revenues increased from the previous year, profitability seems to

    have had a significant decline. We should look carefully at revenues & expenses to

    ensure the legitimacy of these claims.

    Exhibit 3 - Comparison of current year and industry average ratios:

    Ratios 2012 AVG SNC Significance of the Fluctuation

    1. Current Ratio 1.05 0.96

    SNC is slightly below its competitors' average,demonstrating the firms inability to pay theircurrent obligations at an appropriate level.

    2. Days to sell inventory 15.48 42.44

    Significantly above average in inventoryturnover. This most likely indicates that there isobsolete inventory on hand.

    3. Average collection

    period 62.02 53.21

    A lower than average collection period provesthat this firm is able to collect their receivables inan effective and timely manner.

    4. Debt-to Total Assets

    Ratio 65.73% 78.37%Well above average in this category. SNC holdssignificantly more debt than their competitors.

    5. Times interest Earned 3.1 3.70

    Being above average in this field indicates thatinterest expense payments do not strike this

    company as a current issue.

    6. Profit Margin 8.60% 3.83%

    As SNC's profit margin is quite low bycomparison, it seems that they are having issuesconverting profit into revenue.

    7. Return on Assets 7.24% 3.22% Return on assets is significantly below average.

    8. Return on Equity 20.86% 14.89% Return on equity is also below average.


    Liquidity: Although SNC has a shorter collection period, their lower current ratio and

    significantly higher rate of inventory turnover are enough to conclude that SNCs

    liquidity is an issue. Their short-term debt paying ability is significantly weaker than that

    of their competitors.

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    John Molson School of Business ACCO 450

    Reviewed by 12

    Solvency: It has become quite apparent that SNC is taking on more debt than their

    competitors, which is explained by the comparison of debt-to-total assets ratio. That

    being said, their ability to cover significantly more than their interest expense is well

    above average, which proves to creditors that they are not as much of a financial risk.

    Profitability:All aspects of profitability seem to be well below the rate of their

    competitors. SNCs poor investments and high expenses have left them in a risky

    situation, where they rely heavily on high levels of revenue.

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    John Molson School of Business ACCO 450

    Reviewed by 13

    4. Materiality Assessment

    The main users of the financials are the shareholders. As such, it is necessary to

    determine an amount to which a misstatement will affect their decision.

    Shareholdersprimary goal is to maximize returns on their investments. These investors

    will trade based on the discrepancy of their expectations, analysts forecast or available

    information and the actual results. As such, it is important to them that the financial statements

    do not contain material misstatements. This will cause materiality level to decrease.

    It is important to note that SNCs shareholders have lost confidence due to the scandals in

    recent years. Accordingly, the statements will be examined using professional skepticism and

    lower materiality levels to detect any embellishment by management in order to achieve certain

    objectives (management compensation), forecasts (analysts consensus on earnings) or covenants

    (debt, dividend covenants). For instance, if the company manipulates earnings to avoid a loss,

    although the misstatement is small, it may still be considered material because of the outcome. In

    sum, because of the complexity of the organization and recent controversies, this will lead to a

    reduction of materiality level.

    a) Planning data (in thousands)

    (in thousands) 2012 Anticipated 2011 %

    Assets$9,610,920 ,acquisition of PPE, businesses




    , acquisition of businesses and PPEleads to new debts 6,467,285



    , positive net income, issuance ofcommon shares 1,883,068


    Sales/Revenues8,090,960 , reputational damages, difficultyof obtaining new contracts 7,209,871


    Gross Profit1,354,986

    , increase in commodities and cost ofsales, inflation and decrease in sales 1,252,136



    increase in commodities and cost ofsales, inflation 6,727,637


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    John Molson School of Business ACCO 450

    Reviewed by 14

    Income before

    tax377,606 , increase in commodities and cost of

    sales, inflation and decrease in sales




    b) Materiality considerations (in thousands)

    F/S UsersMeasurement


    Dollar Amount

    of the Base



    Dollar Value


    Owners, Banks IBIT $503,768 5-10% 25,188-50,377

    Owners Gross Profit 1,354,985 0.5-5% 6,775-67,749

    Owners, Banks Sales 8,090,960 0.5-2% 40,455-161,819

    Banks Equity 2,078,436 0.5-5% 10,392-103,922

    Banks Total Assets 9,610,920 0.5-1% 48,055-96,110

    c) Other important factors to consider

    Item Impact

    Public company

    Weak internal control in the past

    New client

    Allegation of fraud in progress

    When taking into account all of these factors, we can clearly determine that in order to

    fulfill shareholders need, a low level of materiality must be established. We have decided to use

    an overall materiality level of $25,000,000 CAN. The reason behind this amount is that public

    construction contracts are often very large. With their sales exceeding $8 billion every year, this

    amount seems like the minimum amount that would affect a users decision. Additionally, we

    have also set our performance materiality level to 50%, $12,500,000 CAN, which seems to be

    adequate in detecting smaller errors and preventing them to accumulate into a material one.

    Lastly, all the accounts that are verified, Pomegranate will test them with respect to allmanagement assertions (i.e. existence, ownership, completeness, valuation, cut-off, and


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    John Molson School of Business ACCO 450

    Reviewed by 15

    5. Audit Risk Model

    In order to provide the users of SNC-Lavalins financial statements an unqualified

    opinion, Pomegranate must establish and understand the risk of material misstatement within the

    organization. To determine the overall Audit Risk involved with SNC, our Audit team must

    calculate the probability that the audit will provide a clean (unqualified) opinion when such

    misstatements exist.

    This is linked to the likelihood of material misstatements in these reports (Inherent risks),

    as well as their likelihood of not being detected or prevented through internal control procedures

    implemented by management (Control risk). The risk of Pomegranate being unable to detect this

    risk of material misstatement through audit procedures is the Detection Risk. These risks are theconstituents of the Audit Risk model. The relationship between the Inherent Risks, Control

    Risks, and Detection Risks will permit our company to designate an overall Audit Risk based on

    numerous quantitative and qualitative factors previously discussed.

    Pomegranate has decided to attribute 1% as the probability of incurring material

    misstatements on SNC-Lavalins financial statements. This lower Audit Risk means that Audit

    Assurance must be of 99%. As per Section 2, there are many risks involved with the daily

    operations of this organization. These risks include many political, economical and global factors

    that inherently will lead to a higher risk of material misstatements. The companys involvement

    on the international level, as well as managements seemingly tainted integrity has led to

    conclude the high risk of material misstatements.

    For this precise reason, we must be more thorough with our analysis, and provide the

    external users with a highly confident unqualified opinion. SNC must therefore pass a series of

    Audit Tests in order to receive such treatment. These tests are meant to assess the likelihood offinancial difficulties, and management integrity. Since SNC-Lavalin is also a new client to our

    Audit Team, we must be more meticulous with our Audit Tests by testing materiality and

    verifying the different assertions in question.

    Inherent Risk

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    John Molson School of Business ACCO 450

    Reviewed by 16

    Assuming no internal controls exist, inherent risk is important in determining the overall

    audit risk. In fact, it is the actual risk of finding material misstatements in the companys

    Financial Statements. Professional judgment is required in order to assign a number in form of a

    percentage as the inherent risk. This percentage is based on a variety of factors, which the

    following table will clearly depict.

    Factor Discussion














    1) Level ofjudgmentrequired torecordtransactions

    Accounting policies are extremely complex; they areactive in over 100 countries, having subsidiaries in over40 countries. Assets must be properly valued in thevarious currencies which represent them. Unearnedrevenue from contracts that have not yet been completedcan be incorrectly valued or misrepresented due to manyexternal and internal factors that can hinder thecompletion of the job.


    2) Accountingstaffcompetencyand experience

    Being one of the leading engineering and constructioncompanies in the world (SNC-Lavalin, 2013), we canassume that the company has many competent accountingstaff members that actively participate in the propervaluation of their many financial items. The company hasemployees on an international level that can be ofdifferent competence levels. Although we cannot verifytheir education or level of competency, we can assumethat they are of mixed expertise.


    3) Assetssusceptible ofmisappropriati

    on (theft)

    SNC owns a wide variety of assets ranging fromelectronics to equipment. This may lead to the risk ofasset misappropriation. They also conduct business inThird World countries. Unlike electronics stores however,

    SNC does not distribute high valued products. Theyinstead use them for their daily operations.


    4) Nature ofthe business

    They are involved in many countries around the world, inwhich they hold many locations. The constructionindustry is also home to numerous complex transactionsand contracts. They have many partnerships with third


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    John Molson School of Business ACCO 450

    Reviewed by 17

    parties. In consequence, SNC must develop a complicatedorganizational structure in order to properly manage itsvarious locations and many employees to ultimatelysatisfy their investors.

    5) Changes intechnologiesandorganizationalchanges

    The company has undergone many organizationalchanges, including the appointment of new ChiefExecutive Officer and President Robert G. Card. Thecompany has taken many other measures to strengthen itsmanagement. This means new Board Members, and manyother role variations between executives. Nonetheless,these changes are due to past corruption and fraudulentactivities.


    6) Economic


    Its operations involve a variety countries; it musttherefore survive in different economies, many in which

    arent on par with that of Canada and the United States.Examples of these Third World countries are Uganda,Cambodia, Nigeria, Bangladesh, India, and Kazakhstan.


    7) Actual orsuspected fraudaffecting theentity

    SNC has been subject to past and current investigationsregarding fraudulent activities. Former CEO andExecutive VP are currently being held by Swissauthorities regarding the matter. These allegations arerelated to a Quebec and Bangladesh Project.



    incentives tomanipulateearnings

    A Performance Share Unit and Deferred Share Unit Planwere put into place as compensation for management and

    employees. These directly relate to the companysfinancial performance, and can be subject to manipulationfor personal compensation.


    9) Doubtsaboutmanagementintegrity

    Management integrity is questioned due to the variousinvolvements with corruption and Fraud. SNCsmanagement has previously been linked to theseallegations, and their integrity must therefore beinvestigated


    10) Results ofprevious audits

    Previous Audits have found that there were certain

    payments that were unrelated to projects towards whichthey were documented. Deloittes Audit Committee haspreviously recognized this problem. Investigations havecommenced since the first quarter of 2012.


    11) Relatedpartytransactions

    Profits generated from related-party transactions areaccounted for using the equity or full-consolidationmethods. Revenues are consequently eliminated from the


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    John Molson School of Business ACCO 450

    Reviewed by 18

    periods in which they occurred, with the exception ofprofits which have been realized by the InfrastructureConcession Investments (ICI), their Capital division

    12) Non-routinetransactions

    Considering SNC operates in many industries, including

    Mining, Engineering, Construction, and Infrastructures,its revenues, although unrelated, are considered to beroutine transactions. However, it received more than $376million from Other industries. These revenues are inline with the $372 million they received in 2011 fromsimilar transactions


    13) Initialengagement(new client)

    SNC-Lavalin is a new client to Pomegranate. For thisreason, we must be more implicated in the assessment ofAudit Risk




    inherent risk

    level =

    High (75%)

    Control risk

    Although Deloittes previous involvement with the audit procedures of SNC-Lavalin

    proved the company to have implemented effective internal controls, SNC remains a new client

    to our firm. We must therefore be vigilant in the analysis of their internal control procedures. Thecompanys CEO and CFO are in charge of supervising and evaluating the companys internal

    controls. Considering the previous CEOs involvement in fraudulent activities, internal controls

    may be jeopardized. Deloitte has been meeting periodically in order to discuss financial

    reporting, management information systems, accounting policies, auditing and financial

    reporting issues. This being said, Pomegranate has assigned a Medium (50%)risk to the

    probability of the internal control policies and procedures to fail to detect or prevent material


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    John Molson School of Business ACCO 450

    Reviewed by 19

    Detection Risk

    Detection risk is the risk that material misstatements, followed by SNCs internal control

    procedures, will remain undetected by our firm. In order to infer this probability, we must

    understand the relationship between Inherent Risk, Control Risk, Detection Risk and Audit Risk.

    This number will affect the scrutiny needed in applying Audit Tests.

    AuditRisk(1%) = Inherentrisk(75%) ControlRisk(50%) DetectionRisk(DR)

    DetectionRisk(DR) =AuditRisk(1%)

    Inherentrisk(75%) ControlRisk(50%)

    DetectionRisk(2 23

    %) = AuditRisk(1%)Inherentrisk(75%) ControlRisk(50%)

    Detection Risk is therefore valued at 22

    3%. Substantive procedures are required in order

    to assess the monetary amount of material misstatements in SNC-Lavalins Financial Statements

    and their control deficiencies. These amounts can be verified using two methods: 1) tests of the

    details of transactions, balances, and disclosures; 2) analytical procedures applied to produce

    circumstantial evidence about specific monetary amounts in the accounts (Smieliauskas, &

    Bewley, 2013). The probability that these tests will fail is 22


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    John Molson School of Business ACCO 450

    Reviewed by 20

    6. Conclusion

    SNC is a sophisticated organization involving complex alliances, joint operations and

    related-party transactions. As such, these relationships in essence will trigger incorrect or

    imprecise amounts with respect to financial reporting, though not necessarily material. This

    being said, substantive tests as well as tests of controls are required in order to satisfy the 99%

    level of Audit Assurance we require to provide SNC-Lavalin investors. These tests will be

    effectuated to address specific Audit Issues that our team has discovered.

    For example, the companys presence in over 100 countries complicates the audit by

    implicating various foreign currencies. This consolidation, complex all on its own, does not

    prove the valuation methods used to be correct. On that note, misstatements may be present dueto valuation uncertainties and manipulation through foreign currencies.

    Secondly, our team has found it unusual that according to their 2011 and 2012 Financial

    Statements, revenues increased by 12.21% while net income had decreased by 18.5%. Where

    was this increase in revenues reinvested? Was it reflective of their performance? In comparison

    to their competitors averages, SNC-Lavalin seems to be doing poorly in many aspects. These

    questions and observations must be further analyzed. This seemingly poor performance makes

    them less attractive to potential investors.

    Taking into account that SNC-Lavalin is a new client to Pomegranate; the audit team has

    decided to accept no more than 1% for the Audit Risk. In order to achieve this quality for the

    investors, we have chosen a low overall materiality level in order to satisfy most of users needs.

    We will examine all the quantitative as well as qualitative factors when detecting misstatements.

    To conclude, many tests must be implemented and carefully planned to adequately investigate

    the financial statements.

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    John Molson School of Business ACCO 450


    Barnes, R. (n.d.). SNC-Lavalin Shakes Up Management RanksDesignBuild Source

    Canada.DesignBuild Source Canada. Retrieved October 1, 2013, from

    History | SNC-Lavalin. (n.d.). SNC-Lavalin | Home. Retrieved October 1, 2013, from

    Ligaya, A. (2013, September 18). Canada now dominates World Bank corruption list, thanks to

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