Week 1.

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Case Auditing 3.1/4.1
In preparation of the cases this quarter, you are required to read the Roadrunner Case and the
Roadrunner Annual report. Please see the attachments on Blackboard.

Please also read the following additional info regarding the financial audit of Roadrunner:

After Mrs. Countant decided to accept the position of controller at Roadrunner, PVC Accountants
assigned a new audit engagement partner. Mr. Brown will take over this position, he is an experienced
CPA and has worked for PVC Accountants B.V. since the beginning of his career, in total 15 years now.

Mr. Brown has been granted various promotions; PVC management is very impressed with his ability to
understand new clients very quickly and over the years he has worked for both the audit and consulting
teams. During the last two years he has supported various clients with mergers and acquisitions,
expansions etc. Recently he decided to focus his effort solely on the audit engagements for both public
and non-public audit firms.

Mr. Brown has already taken notice of the Roadrunner firm. The following he already concluded:
- The size of Roadrunner requires an annual audit on the financial statements
- Roadrunner is a non-public firm

Below are 7 questions on the Roadrunner case linked to the topics of week 1.2.

Question 1:
Mr. Brown wants to ensure he is up to date with the latest regulations in his role as audit engagement
partner. Name 3 different categories of Standards which are crucial for Mr. Brown to go through and
explain why each category is important for an audit engagement partner.

Category of Standards Why relevant/important for Mr. Brown?

Question 2:
Roadrunner is planning to expand their business again. E-bikes are becoming more and more popular
and Mr. Keilson is convinced that Roadrunner needs to invest in specialized shops. In total he wants to
open up 4 shops (North, South, East and West) which focus solely on E-bikes. Mr. Keilson would like to
attract an investor and of course these plans need to be accompanied by a business plan, prognoses etc.
He has discussed the plans briefly with Mrs. Countant and she is willing to help out with the
preparations for the financing part. However she has been quite busy settling in in her new job, so she

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suggest that Mr. Brown might be willing to provide some support. Mr. Keilson and Mrs. Countant sat
down together and made a list of services they would like Mr. Brown to provide.
Today they have scheduled a meeting and Mr. Brown has made a table for himself to make sure that he
complies with the latest regulations (as also reviewed in question 1).

Put yourself in the position of Mr. Brown and complete the following table below:

Service Allowed yes/no + explain your Additional measures

answer required in case service is
accepted?
On a temporary basis, accept the
position of project manager for
the business expansion, in which
he should make decisions on
deadlines, priorities etc.

Assist in creating the

Roadrunner ‘E-bike Vision and
Strategy’
Implementation of a widely used
project management system
(developed by Oracle)

Determine the fair value of the

Roadrunner fixed assets, approx.
60% of total assets (to serve as
collateral for the financing)

Question 3:
Mr. Brown is very pleased that he had studied the latest regulations. It enabled him to have a good
conversation with Mr. Keilson and he could indicate which services he could support and which ones he
could not.
Imagine Roadrunner would be listed at the stock exchange, how would the below stated table look like?

Complete the table below for the same services as indicated in question 2.

Service Allowed? Explain your answer.

On a temporary basis, accept the position of
project manager for the business expansion,
in which he should make decisions on
deadlines, priorities etc.

Assist in creating the Roadrunner ‘E-bike

Vision and Strategy’

Implementation of a widely used project

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 management system (developed by Oracle)

Determine the fair value of the Roadrunner

fixed assets, approx. 60% of total assets (to
serve as collateral for the financing)

Question 4:
In the world today there are multiple discussions going on whether an auditor should perform both
attest and nonattest services for the same client. Some big names in the CPA world argue that this
combination can enhance the audit itself. Others are critical about this combination of services and they
would like these services to be strictly separated.

4a. Explain in your own words what the difference is between an attest and nonattest service is.

4b. Mention one advantage and one disadvantage of the combination of attest and nonattest services
for an audit client.

Question 5:
The controlling department at Roadrunner has been working on the prognoses for the expansion plans;
setting up the 4 new E-bike stores.
Mrs. Countant has reviewed the overviews and has discussed the prognoses with her boss, Mrs.
Lemaire. They both think that the ratio’s are a bit low, especially the current ratio and solvency ratio.
They are afraid that with these number, the bank will not grant them the loan that they need.
After a few hours of thinking and discussion, they conclude that the inventory valuation is a bit low and
probably can be raised. They feel they have been too conservative, over the last couple of years, with
the calculation of the provision for second hand bikes.
They decide to adjust the numbers and reduce the provision to 50% of the original amount. Suddenly
the ratio’s look a lot better based on these new assumptions.
Mrs. Lemaire wants to have a second opinion and discusses the decision with Mr. Brown.

Explain how this discussion can cause an ethical dilemma for Mr. Brown.

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Question 6:
Mr. Brown has started the audit engagement for the year of 2018 and is working on the interim audit.
In the team they have been talking about covered members. Mr. Brown was not very familiar with this
term and decided to do some research on this topic.

6a. Explain what is a covered member in relation to an audit engagement.

6b. Name 3 persons who can be labeled as a covered member in the audit of Roadrunner financial
statements.

Question 7:
Mr. Brown notices during his interim audit in September of this year, that Roadrunner has a small
internal audit department. They perform small operation audits on the sales and procurement process.
The internal audit department claims to comply with the IIA’s Code of Ethics.

What is main difference between the Code of Ethics for internal auditors and the Standards on
Professional Ethics for external auditors?