Audit Group Assignment
Bombardier Pre-Engagement and Audit Strategy
1. Pre-Engagement Activities
a) Client and Engagement background:
Bombardier Inc. is a Canadian aerospace and transportation company with national and international operations. They offer a variety of products and services including business commercial and amphibious aircrafts, jet travel solutions, specialized aircraft maintenance, technical services and customized transportation systems such as rail vehicles and trolley buses. Aerospace industry in the world is facing several short term challenges which directly affect the performance and management decisions of Bombardier Inc. For example, expected economic growth in the US and European Market would show a growth of 2.2% and 0.3% in 2013 which is much lower than 2011. As the result of this, consumers’ confidence is low and the product demand went down. However, the company has been able to successfully battle the economic downturn by securing more business aircraft orders and investing in new technology such as the Cseries aircraft. As per recent news, there was no indication that the company has been involved in fraudulent activities. Currently, Bombardier has secured a contract with Dubai based airline to sell its C300 aircraft for $387 million US dollars. (Deveau, 2013). Transportation industry is actually underoing steady growth and Bombardier has not experienced any change in tenders. Therefore, the company is extremely profitable (Revenue-$17 billion), offers differentiated products and is investing heavily into new technologies.
b) Management integrity and responsibility:
Bombardier’s MD&A has been prepared in accordance with the requirements of the Canadian Securities Administration. Audit committee for Bombardier consists entirely of independent and financial literate directors. MD&A contains both IFRS and non-GAAP measures with certain measures that are also presented on a pro-forma basis to reflect impact of new accounting changes such as debt. Non-Gaap measures are defined and reconciled to the most comparable IFRS measure. Management has also identified operational risks in the annual report and outlines several risk management strategies that they are employing. This indicates that Bombardier is responsible when it comes to facing challenges for the company. For example, the management has a gated product development process, high collaboration with customers, investment in mobility solutions to mitigate risk of low product demand and faulty product design. Bombardier also has several plans to reduce risk of pension liabilities and assets. From an accounting perspective, the company has employed appropriate measures. The financial statements have extensive notes where they segregate cost and revenue for all its segments, lists critical judgements, policies and estimates made in accordance with IFRS principles. CEO and CFO of the company themselves carry out evaluation of the disclosure controls and procedures to test their design and effectiveness. Several internal controls for financial reporting have been designed and tested by the CFO. These controls are required as per criteria set by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) on internal control-Integrated Framework. Management also has a Code of Ethics and Business Conduct (the “Code) which outlines clear standards of behaviour for all Board members as well as employees. This code is implemented by training existing and new employees to act in accordance with the values of the company.
Therefore, Bombardier takes their management responsibility towards financial reporting and operations seriously by using strategies to reduce risks. They ensure that there are proper internal controls employed over financial reporting and also have a well designed code of ethics.
