Texas Minerals Inc
Texas Minerals Inc. Audit Memo
To: Daniel Alfredsson
Date: Monday August31, 2013
Re: Audit Planning Memo for Texas Minerals
This is not the first time audit of TX Minerals Inc. (TX). We have been auditing this firm for the past 20 years. This reduces the overall engagement risk. Our auditing firm should be pretty familiar with our client’s fertilizer business and the general control environment is well known to us as well. So, in theory, we should be able to rely on the internal control structure present in TX minerals. However, there are a few key risks that have been identified which make the engagement risk high. TX minerals has recently started to expand into new markets because the demand for potash is increasing in developing countries, such as China, Brazil and India. In order, to finance this expansion, Tim Thomas, has approached lenders to obtain the money required. The lenders were only willing to provide half of the requested $ 20 million. The other $ 10 million had to be obtained from other sources. Tim Thomas approached a businessman named Ardon Hernandez to provide the required cash. This individual, however, has a very bad reputation and has been investigated by the OPP for previous fraud charges. Why would the CEO want to associate himself with a criminal? If the news were to surface that he was dealing with an individual that had a questionable reputation this would very negatively influence the reputation of TX Minerals. As the auditors, we wouldn’t want to be associated with Mr. Hernandez or with TX Minerals. Y&A’s reputation would be impacted negatively and we would start losing some of our clients. Shareholders would also lose faith in our ability to objectively and independently evaluate the financial statements of companies. Our accounting company would be considered accomplices if a fraud investigation were to arise and our accounting licences would be on the line. If the other lenders find out how Tim obtained the $10 million
To: Daniel Alfredsson
Date: Monday August31, 2013
Re: Audit Planning Memo for Texas Minerals
This is not the first time audit of TX Minerals Inc. (TX). We have been auditing this firm for the past 20 years. This reduces the overall engagement risk. Our auditing firm should be pretty familiar with our client’s fertilizer business and the general control environment is well known to us as well. So, in theory, we should be able to rely on the internal control structure present in TX minerals. However, there are a few key risks that have been identified which make the engagement risk high. TX minerals has recently started to expand into new markets because the demand for potash is increasing in developing countries, such as China, Brazil and India. In order, to finance this expansion, Tim Thomas, has approached lenders to obtain the money required. The lenders were only willing to provide half of the requested $ 20 million. The other $ 10 million had to be obtained from other sources. Tim Thomas approached a businessman named Ardon Hernandez to provide the required cash. This individual, however, has a very bad reputation and has been investigated by the OPP for previous fraud charges. Why would the CEO want to associate himself with a criminal? If the news were to surface that he was dealing with an individual that had a questionable reputation this would very negatively influence the reputation of TX Minerals. As the auditors, we wouldn’t want to be associated with Mr. Hernandez or with TX Minerals. Y&A’s reputation would be impacted negatively and we would start losing some of our clients. Shareholders would also lose faith in our ability to objectively and independently evaluate the financial statements of companies. Our accounting company would be considered accomplices if a fraud investigation were to arise and our accounting licences would be on the line. If the other lenders find out how Tim obtained the $10 million