1. Risking it all…but you
don’t have to
www.pwc.com
Presenter
Kristin Rivera, Partner

2. PwC
An Important Note:
• These materials, and the oral presentation accompanying them, are
for educational purposes only.
• The views expressed in this presentation are ours and do not
necessarily represent the views of PricewaterhouseCoopers.
Slide 2

3. PwC
Setting the stage…
You are in a meeting with the Audit Committee when you find out that
two weeks ago the CEO suspended senior management of a material
subsidiary following the discovery of bribes paid to government officials
in order to win contracts. In addition, four contracts at the subsidiary
have improper revenue recognition.
The Audit Committee Chair confirms that the company’s law firm has
been investigating the allegations, including whether there was any
knowledge of the bribes by corporate management. This same law firm
is also currently working on a prospectus for a new stock offering for
the company.
Slide 3

4. PwC
The characters…
Slide 4
Alistair Chisholm CL Group Audit Committee Chair
Michael Brindley CL Group Audit Committee Member
Gordon Carey CL Group Audit Committee Member
Graham Harris CL Group Chief Executive Officer
Eric Merchant Legal Counsel, Bradman & Ellis
Bill Crawford Independent Auditors, Partner
Caroline Barre Independent Auditors, Manager

5. PwC
Crucial decisions…
Slide 5
Investigation scope Narrow vs. wide
CFO e-mail Smoking gun vs. normal managerial communication
Retain counsel Law firm that knows the company best vs. new law firm
Time Design procedures to fit time allotted?

6. PwC
Risking it all – Part I

7. PwC
Facilitated discussion
How would you advise the Audit Committee on the following topics:
- Investigation Team
◦ Is the Law Firm sufficiently objective?
◦ Is it appropriate for the CEO to oversee the investigation?
◦ Should internal audit be involved? If so, how?
- Scope and Procedures
◦ Email review
◦ Depth and breadth of contract review
◦ Interviews (local management refusing to be interviewed)
Slide 7
Risking it all – Part I

8. PwC
Facilitated discussion cont.
1. How would you manage the need or desire for further investigation
with the upcoming earnings release and secondary offering? How
would you recommend managing the balance of financial/market
implications with completeness of investigation?
2. Where should the company draw the line with regard to the
investigation scope?
Slide 8
Risking it all – Part I

9. PwC
The reality…
• Widespread revenue issues not isolated to one subsidiary
• CFO involvement is much greater, constituting management fraud
• Financial statement restatements
• Major regulatory investigation
Slide 9
Disaster!
Risking it all – Part I

10. PwC
Risking it all – Part II

11. PwC
Facilitated discussion
1. What should the external auditor’s role be in connection with the
investigation? What should the external auditor be thinking about?
2. When should you expand the scope beyond the issued raised in the
initial allegation? Where do you stop?
3. What additional recommendations would you make to the CL Group
CEO and AC on how to improve the Control Environment of the
company.
4. Even after the issue was first discovered via the hotline, if things were
handled differently by the CEO and AC, how might things have turned
out differently for the company and the players?
Slide 11
Risking it all – Part II

12. PwC
How it could have been….
Epilogue
Slide 12
Risking it all – Part III

13. PwC
Group Discussion
How were the results different in this scenario and what were the
actions that led to these?
How can you apply these lessons to your own organization or practice?
• How aware is your team with similar/complex matters?
• How might your plans change in future?
• Is there a need for different communication?
• Are you teaming with the right people?
• Are you taking the opportunity to add more value?
Slide 13
Risking it all - Part III

14. PwC
Questions?
Slide 14

15. © 2011 PricewaterhouseCoopers LLP. All rights reserved. "PricewaterhouseCoopers" refers to
PricewaterhouseCoopers LLP or, as the context requires, the PricewaterhouseCoopers global network or other
member firms of the network, each of which is a separate and independent legal entity.
The information contained in this document is for general guidance on matters of interest only. Before making any
decision or taking any action, you should consult a PricewaterhouseCoopers professional.
Thank you for attending today’s
session
Kristin D. Rivera
Partner, PwC
(415) 498 6566
kristin.d.rivera@us.pwc.com