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EcoPak Inc. EcoPak's board meeting with its auditors to approve the annual financial statements has been scheduled for Page 704 February 28. Tariq has
EcoPak Inc. EcoPak's board meeting with its auditors to approve the annual financial statements has been scheduled for Page 704 February 28. Tariq has reviewed all of the files and has asked his partner, Phyllis, to do an engagement quality review, since it is a new audit engagement and the company has plans to do an IPO in the near future. M&G's policy is to have an audit team meeting after these reviews are completed to prepare the audit engagement partner for this board meeting and to finalize the auditor communication with those charged with governance. Tariq has concluded that the scope of the audit has been acceptable, and that the financial statements comply with GAAP (IFRS) and include all of the disclosures needed to achieve fair presentation. All of the misstatements identified by the audit were adjusted, though their overall impact on income was much less than materiality. Two misclassification misstatements were addressed appropriately in the final version of the financial statements. Several control issues that arose during the audit have been noted for inclusion in the management letter. Tariq has discussed these points with Nina, and she has agreed that they should be reported to the board at the upcoming meeting. Before the board meeting, Nina also informed Tariq about a recent development. A venture capital firm is interested in investing in EcoPak shares, a substantial investment that would allow EcoPak to greatly reduce its bank debt and give it a much stronger balance sheet. The venture capitalists want to see the audited financial statements and will likely base their offer on a multiple of last year's earnings before interest, taxes, and depreciation/amortization (EBITDA). Tariq realizes that being aware of this specific financial statement user affects the risk profile of the engagement and perhaps would have lowered the overall materiality level that they selected at the initial planning stage. However, he notes that they had already selected a relatively low performance materiality level due to its being a first-time audit, so they are probably fine even with this major change in the type of users who will be making decisions based on the financial statements.
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