Suggested approach

To:
CA
Re:

Partner From:
ReadQ Inc. - Insurance Claim

MEMORANDUM
I met with Ms. Black of ReadQ and have reviewed the relevant materials. My assessment of
the situation is presented below.
Engagement management
We have been engaged by ReadQ to assist the company in preparing a statement of claim for
its insurance company because of a fire on September 2. We have also been asked to certify
the claim for the insurance company, which the insurance company will use in its evaluation
of ReadQs claim.
A number of engagement issues need to be sorted out as we proceed with this engagement. It
is not clear who the client is for the certification. Are we preparing the certification on behalf
of ReadQ or on behalf of the insurance company? We are seeking to help a long-time client
maximize their claim within the parameters of the insurance policy. The insurance company is
looking for an objective interpretation of the losses suffered by ReadQ. If we accept this
engagement, we must be especially careful to approach the work with an independent frame
of mind.
In addition to the insurance company, ReadQs bank may also be a user of the statement of
claim if the insurance company does not pay within 30 days. We need to consider whether
there are any implications associated with the bank using the statement of claim. We could
restrict distribution of the statement of claim to the insurance company, or we could perform
procedures that would be appropriate for the banks purpose.
ReadQ has asked that we do this engagement on a contingent fee basis. I do not think that this
request is appropriate because this is an assurance engagement and there is a need for
objectivity on our part. A contingent fee would, at a minimum, lend the appearance of bias in
our approach to the engagement since our economic incentive would be to maximize the
amount received by ReadQ.
Assurance

The insurance policy requires that an independent accountant certify the statement of claim. It
seems that some form of assurance is required, but it is not clear what is required for
certification or whether we can provide the assurance that the insurance company requires. If
the insurance company requires a conclusion that the claim is in accordance with the terms of
the insurance policy, then it will be an assurance engagement. From the information I have
gathered, it does seem that the insurance company wants assurance regarding the contents of
the claim.
There are a couple of choices for the type of report we can provide to the insurance company.
One possibility is an audit report on compliance with agreements, statutes, and regulations (S.
5815). This report will allow us to audit all the elements of the claim and provide assurance
on them. Alternatively, we could discuss the specific requirements with the insurance
company and perform the specific procedures it requires (S. 9100). If we are not able to
obtain sufficient appropriate audit evidence to evaluate one or more aspects of the claim, we
may not be able to provide the assurance required for certification. It is possible that we may
have to qualify our report because of scope limitations. For example, it is not yet clear
whether the accounting records and invoices were destroyed in the fire. If they were, there
may be scope problems.
ReadQ wants the claim to be processed quickly, which limits the amount of time we have in
which to do our work. We need to discuss this matter with the client and agree on a
reasonable timetable. We should advise the client that a delay is likely with the lost profits
portion of the claim because we will have to wait until the end of the year to estimate the
amount of lost profits. This delay may cause a problem for ReadQ because of its cash flow
concerns. We may be able to assist ReadQ by providing it with payment terms for our fees
that suit their cash flow situation.
We should advise ReadQ that it has an obligation to take all reasonable steps necessary to
mitigate its losses. That means that the company should not stand by and assume it can do
nothing while waiting for its cheque from the insurance company to arrive.
For our planning purposes, it would be prudent to keep the audit and assurance claim
engagements separate by assigning different people to each. This will ensure our
independence.
Finally, it should be noted that because of the nature of the engagement, everything is
material. The amount that ReadQ receives is equal to the amount approved by the insurance
company, based on the terms of the insurance policy. Therefore, every dollar is important.

Analysis of insurance claim - revised statement of claim

1. Inventory
books
The amount that ReadQ has included in its initial claim represents 100% of the cost of the
books with no allowance for a decline in value. However, industry norms indicate that the
saleability of at least some books declines with time, and inventory is written down based on
the age of the books on hand. The policy allows ReadQ to recover no more than the lower of
net realizable value (NRV) and replacement cost. If NRV falls below cost, then according to
the policy NRV should be the amount that ReadQ is compensated. The rationale is that the
insured should not be better off as a result of the fire. If ReadQ is reimbursed for the cost of
the books when NRV is less than cost, then ReadQ will be better off since it will receive more
from the insurance company than it would have from sale of the books. An important question
is whether the allowances traditionally used by ReadQ are reasonable estimates of the decline
in value. Assuming the allowances noted are appropriate, the amount claimed should be as
follows:
Year printed
taken
Current year
1 year prior
2 years prior
3 or more years prior

Allowance

Total cost

Cost after allowance

5%
10%
15%
25%

$201,200
40,500
126,710
144,440

$191,140
36,450
107,704
108,330

$512,850

$443,624

The new printing equipment is supposed to be 10% more efficient than the equipment it
replaced, which reduces the cost of replacing the destroyed books. In principle, this should
reduce further the amount that ReadQ should recover from the insurance company. If the
equipment improves efficiency as claimed, ReadQ will be able to reap the benefits
immediately and the replacement costs should be reduced by 10%ReadQ should receive
$461,565 (90% of $512,850) or $399,262 (90% of $443,624), depending on whether the full
cost or the cost after taking the allowance is claimed.
Before the payout is determined, however, the claim of a 10% improvement in efficiency
needs closer scrutiny. Where does this 10% come from? Has ReadQ found that it enjoys a
benefit of this magnitude? Or is this 10% improvement a marketing claim that applies only
under ideal conditions? Will ReadQ benefit immediately, or will it take time before the
efficiencies are achieved? It is not at all clear that ReadQ will benefit from these efficiencies,
and I do not think that the payout to ReadQ can justifiably be based on a possible gain. If the
10% saving is not borne out, ReadQ is significantly out of pocket. I recommend that the 10%
increase in efficiency not be factored into the claim. It may be prudent not to emphasize the
benefits of these efficiencies when justifying the purchase of the XP750 since the insurance
company may use the justification to argue for a reduction in the payment for inventory
replacement.
Quantities reported are based on a comparison of physical count to perpetual inventory. We
have not tested or relied on the perpetual system in our audits, so there is some question as to
the reliability of the information. Our experience has shown no problems in the past. The
impact will depend on the type of engagement we doit may limit the assurance we can give.
2. Profit on lost
sales
ReadQ is entitled to recover lost profits caused by the insured event. As a result, profits from
permanently lost sales can be recovered. The insurance company may respond that if the
inventory is replaced quickly, no sales can be considered lost because ReadQ will be in a
position to sell the entire inventory. This interpretation is valid if sales are merely delayed and
not lost. In that case there is no loss of profit.
ReadQs claim assumes that the profit has been lost on all the inventory that was destroyed or
damaged in the fire. This is not a realistic assertion since ReadQ will be able to replace and
sell at least some of the books. Making matters worse is the assumption that items that have
been in inventory for a long time will suddenly be sold. We will have to determine the amount
of time ReadQ is not operating so that we can come up with an estimate of the lost sales.
Because some items remain in inventory for some time, ReadQ will be able to replace the
inventory and ultimately sell the items.

To estimate the loss we must consider the following:

the

amount of sales permanently lost because the fire will not allow the company to
produce all the books it requires to meet demand for the busy Christmas season;
the impact of the award-winning book;
the permanent loss of sales because some books will become less marketable or
unsaleablefor example, seasonal book sales are lost;
consideration for old stocksimilar to the valuation adjustments made for
inventory.
Some items will sell at reduced margins or not at all; and
the requirement to minimize losses through the timely replacement of inventory.
The estimate of a loss of profits is very difficult. Clearly, the ReadQs estimate overstates the
loss, for the reasons explained above. More information is necessary to make a reasonable
estimate.
Cost
promotion

recovery

The issue appears to be that ReadQ anticipates that it will lose sales as a result of not being
able to produce enough books to meet demandthe lost sales being the result of a successful
promotion where demand goes unfulfilled. If the insurance company is willing to compensate
ReadQ for lost sales and profits, then compensation for the promotion costs is not appropriate.
The company is not entitled to the benefits from the lost sales and from the promotion costs
since the outcome would make ReadQ better off as a result of the fire, which is not
acceptable. I think that ReadQ would be better off recovering lost profits on sales than the lost
promotion cost.
The problem is that the effectiveness of the promotion may be hard to substantiate unless
there is some precedent that demonstrates its effectiveness. It would be necessary to base the
loss on forecasted sales rather than on historical patterns (although the insurance company
may find this comparison unacceptable). Certainly the award that one of ReadQs books
received would enhance the effectiveness of the program.

3. Printing
equipment
The insurance policy does not make clear what is meant by replacement cost. Replacement
cost could mean the cost of replacing the destroyed assets with brand new ones or it could
mean replacement cost after taking into consideration the age and condition of the destroyed

assets. This matter has a definite answer. We must determine what the policy provides for by
contacting the insurance company.

The situation is a bit tricky because ReadQ did not acquire equipment identical to that
destroyed, as the particular model was no longer available. The model ReadQ did purchase
has some features that go beyond what could be considered a reasonable substitute for the
destroyed equipment. The insurance companys obligation is to provide ReadQ with
equipment that makes it no worse off than it was before the fire.
At a minimum, ReadQ is entitled to equipment with the same features. The XP550 is the
closest in features to the destroyed printer, so that should be what the insurance company
should compensate ReadQ for. As a result, the insurance company is unlikely to pay the extra
$10,000 for the XP 750. The insurance company could contend that the XP 550 offers more
than the destroyed equipment and so the compensation for the loss should be reduced.
However, if the XP 550 is the option closest to the destroyed equipment without leaving
ReadQ worse off, then the insurance company has an obligation to pay the full amount for the
XP 550.
The rush delivery charges should be covered because getting the new equipment in place as
quickly as possible should reduce the amount of lost sales, especially in view of the
seasonality of the business and the time of year. The insurance company could attempt to
argue that rush delivery is not covered. Training costs should be covered, since employees
must know how to operate the new equipment and the need for training is a direct result of the
fire. The training is also necessary to validate the warranty and so is an integral cost of the
equipment. If the training cost for the XP 550 differs from that for the XP 750, the insurance
company could argue that the incremental amount should not be covered.
If replacement cost means the cost of replacing the lost equipment with new equipment, then
ReadQ should receive $475,000. If replacement cost means depreciated replacement cost,
then ReadQ should receive an amount in the neighbourhood of $257,000 (the proportion of
the destroyed equipment that had not been amortized ($475,000 x $242,000/$450,000)). I
assume that delivery and training are recoverable. The maximum that ReadQ can expect to
receive is the full cost of the XP 750. The worst-case scenario is that ReadQ receives
$257,000.

4. Building repairs and cleaning

Materials and supplies used in the repair and cleaning of the building are allowable under the
insurance policy. However, the policy permits only 50% of the cost of work done by ReadQs
employees to be claimed. This means that only $12,658.50 ($25,317 x 50%) of the cost of
employee labour can be recovered from the insurance policy. Nor does the policy allow for
the recovery of overhead costs. The way in which ReadQ has calculated the cost of
supervision by foremen as a percentage of labour costs suggests that it is an overhead
allocation rather than the actual cost of the foremen. To recover the cost of the foremen,
ReadQ will have to show the actual cost of the work they performed. It is also necessary to
show that the cost of benefits, which is charged at 20% of the cost of labour, represents the
actual cost of the benefits. ReadQ can charge the actual cost of benefits but not overhead
costs, so it will be up to ReadQ to support the charge (with our help, if need be).
The insurance policy allows the insurance company to limit payment to an estimate of the
value of work On this basis, the insurance company may object to the overtime charge
since a third-party provider would not have charged overtime. ReadQ can try to support the
overtime charge by arguing that the costs are justifiable because the overtime enabled the
company to get operating again as quickly as possible, which served to minimize its losses.
With respect to the overtime charges and for all costs incurred, ReadQs case will be more
supportable if it can show that the in-house charges are comparable to those a third party
would have charged.
GST should not be included in the claim because of the availability of the input tax credit.
Based on the terms of the insurance policy, ReadQs claim will be reduced by at least 50% of
the cost of labour. The worst-case scenario is that the insurance company will also try to
exclude the overtime charges, benefit costs, and the cost of the foremen. The revised claim for
building repairs and cleaning is:

Best case
Materials
Labour
Basic
Overtime
Benefits
Foreman
Supplies
GST

Total

Worst case
23,435

$23,435

5,751
3,600
1,870
1,437
2,500
0

5,751
0
0
0
2,500
0

38,593

$31,686

5. Warehouse fixtures
The insurance company should be willing to pay for the destroyed warehouse fixtures since
they appear to be explicitly covered by the policy. The question is how much should be paid.
As was the case with printing equipment, we need clarification on the definition of
replacement costis it new or depreciated? If it is replacement cost new, ReadQ will receive
$134,000. Otherwise, it will receive $75,040, which is 56% of the replacement cost new, the
proportion of the fixtures that is unamortized (1-55,000/125,000). The information gathered
from ReadQ makes no mention of the cost of installing the new fixtures. This amount may be
included in the replacement cost or may have been ignored. ReadQ should be entitled to
100% reimbursement of these costs regardless of the definition of replacement cost.
6. Inventory
materials
Paper costs have declined 5%; therefore, replacement cost will be $3,635 ($72,700 x 0.05)
less than reported in the inventory listing. ReadQ also receives a volume discount at the end
of the year from its supplier. Whether the insurance company is entitled to the discount is
debatable. It could be argued that the insurance company is entitled to the volume discount
only to the extent that the replacement paper itself exceeds the volume required. Alternatively,
it could be argued that the discount should be averaged over all purchases during the year. I
suggest we use the former approach since it is beneficial to ReadQ and is defensible. I think
the worst case is that the discount would have to be shared proportionately. The claim for
inventory materials should be $112,350.
7. Display
books
If the display books are considered inventory, ReadQ is unlikely to recover the $15,000 cost
of cleaning the books unless it had special insurance coverage for them. If there is no special

insurance, the insurance coverage is limited to the lower of replacement cost and net
realizable value. The average cost of producing books in the current year according to the

information provided is $7.50 per book. To replace the 150 damaged books would cost $1,125
($7.50 x 150).
As an alternative, it might be possible to argue that the display books are capital assets, not
inventory. The display books are not available for sale and therefore should not be classified
as inventory. The books are used in ReadQs offices, much as art or furniture would be. Art
and furniture would be classified as capital assets. If the display books are considered capital
assets, then the repair costs would be allowable.
In my view it is not very likely that the insurance company will allow the books to be
classified as capital assets, but it is certainly worth the try.
8. Other
costs
ReadQ has included a charge for interest in its statement of claim. We have to determine
whether interest is covered by the policy. If interest is allowed by the policy, the interest claim
should be the actual out-of-pocket cost incurred. The amount that ReadQ has included in the
statement of claim for interest is based on the total amount of the claim from the date of the
fire on September 2. This figure is not realistic since many costs were incurred after that date.
To calculate the appropriate amount of interest we will have to determine when actual
payments were made, such as the cost of repairing the building, etc. It does not appear
appropriate to charge interest on certain costs because they do not represent out-of-pocket
expenditures. These include the inventory replacement cost and lost profit.
A first cut at this estimate would be to include the following costs for a period of one month:
building repairs and cleaning, printing equipment, fixtures, inventory material, and display
books. This would make the interest cost $7,711 ($771,068 x 1%). An exact calculation will
require that we look at the actual dates of payments.
We should also determine whether our fees can be included as part of the claim.
9. Summ
ary
Below is a summary of the revised claim. Additional revisions may be required pending the
receipt of additional information. Also, it was not possible to estimate lost profits at this time.
Original claim
1. Building repairs and cleaning
2. Printing equipment

$ 53,067
485,000

Revised claim
$ 38,593
485,000

3. Warehouse fixtures
4. Inventory - books
5. Inventory - material

134,000
512,850
115,985

134,000
443,624
112,350

6.
7.
8.
9.

Display books
Promotional costs
Profit on lost sales
Interest
Total claim

15,000
7,500
512,850
36,725
$1,872,391

15,000
0
?
18,177
$1,246,744

Preliminary outline of work

Below is a preliminary list of work that needs to be done on the engagement:
1. Review of insurance policy
Do we require help with interpreting the policy or help with the forensic accounting work?
The insurance company will probably hire an expert to assist it in interpreting the claim. The
policy must be read to ensure that we understand its terms so that we can calculate the claim
properly.
2. Building
cleaning

repairs

and

Materialsexamine invoicesensure the materials used in repair and cleaning were related
to fire damage. Labourexamine time sheets and verify payroll burden rate, overtime
premium; determine how supervision costs and benefits were arrived at (were they overhead
or actual costs?).
3. Printing
equipment
Examine invoices, inspect equipment, and review specifications of equipment. We may have
to perform work to ensure there was no alternative to purchasing the upgraded equipment.
4. Inventory books
Did the insurance company do an inspection at time of fire? If so, we should examine the
inspection report.
The quantities in the insurance claim are based on a comparison of the physical inventory
count to the perpetual records. However, we have not tested or relied on the perpetual system.
Can we reconcile changes since the year-end physical count from shipping and production
records (inventory roll forward)? We could also vouch purchases of materials and estimate
sales since the physical count. We should also inspect the remains of the inventory after the
fire to determine its condition and whether any of what remains is salvageable and saleable.
The fact that we did not rely on the perpetual inventory system may create problems with
regard to providing assurance on the inventory since it may be difficult to determine the
amount of inventory that was on hand at the time of the fire.
5. Inventory
materials

It may be difficult to verify quantities because likely difficult to estimate usage. Vouch
purchases; estimate usage since the physical count.

6. Display books
Verifying costs is not a problemvouch to invoiceprovided that the invoices are available
and not destroyed in the fire. It may be difficult to determine appropriate coverage.
7. Promotional costs
Verifying costs is not a problemvouch to invoiceit may be difficult to determine
appropriate coverage.
8. Other costs
Interest costs - Verifying the calculations is straightforward. We need to determine whether
an overdraft was created by these payments or whether interest was actually incurred.

Other items
Tax issues

Replacement property rules for capital assetstax consequences can be avoided.

Reimbursement of costs is taxable (interest, other out of pocket costs).
Lost profit is taxable.
Lost inventory is deductible, but the proceeds for replacing it are taxable.
Storage of first edition books

We should suggest that ReadQ investigate special insurance coverage for the original books
and that it store these books in a secure place.
Cash flow issues
The client has noted its tight cash flow at this time of the year. Discussions should be held
with the bank immediately to ensure that interim financing is available until the insurance
company pays the claim. Discussions with suppliers should also be held so that they are aware
of the situation and will continue to offer credit to ReadQ in the event of payment delays.
ReadQ could use the money used to replace the equipment for operating purposes and finance
the replacement equipment on a long-term basis.

Notification of claim
We should confirm that ReadQ has filed with the insurance company written notice of the fire
and the pending claim.

Marking key
IMPORTANT NOTICE
To understand how to interpret the marking key properly, it is imperative that readers refer
to:
- Introduction to Suggested Approaches and Marking Keys and,
- The suggested approaches to questions.
% of
candidates
Mark awarded
value
mark
A. OVERVIEW-ENGAGEMENT MANAGEMENT
1.
Certification will be used by insurance company
1
71
2.
Bank is also a potential user of the report/claim
1
49
3.
- limit the distribution of report not for banks use
1
11
4.
- or perform the procedures necessary for the banks purpose
if required
1
1
5.
Candidate recognizes conflict between insurance co. and ReadQ
2
39
6.
Are we independent (in context of insurance policy) can we
2
20
accept engagement
7.
- if we can accept engagement, must be sensitive to independence
1
1
because of conflict/bias
8.
Contingent fees are not appropriate because of the need for
objectivity
1
85
Discussion of the nature of assurance being provided
9.
This is an assurance engagement that claim is in accordance with
1
37
terms of insurance policy
10. - discuss type of report that should be provided (S.5815)
1
21
11. Insurance company wants assurance regarding the claims contents
1
1
12. - alternatively we could discuss with the insurance company and
1
24
perform specific procedures they require (S.9100)
13. If we cannot obtain suff. evidence to evaluate aspects of the claim,
1
2
we may not be able to obtain the assurance required (context of fire)
14. - potential qualification (scope limitation)
1
3
15. - are invoices/records available did they burn
1
4
16. The client expects the claim to be processed by Oct. 31 (timing
of work)
1
38
17. - maybe a delay in preparing the lost profits portion of the claim
2
1
18. ReadQ responsible for mitigating their damages
1
2
19. Auditors should be different people than those handling claim
1
2
independent
20. Discussion of materiality everything is material
1
37
A.
AVAILABLE 23/MAXIMUM 23

B.

ANALYSIS OF INSURANCE CLAIM - REVISED STATEMENT OF CLAIM

Building repairs and cleaning
21. Labour performed by the insured must be decreased by 50% cal
22. Employee benefits/foreman can be interpreted as overhead
23. - have to substantiate employee benefits to show that
20% is actual cost
24. - have to substantiate that foreman actually was involved
in the work
25. Overtime charge may not be permitted/be disputed
26. - can support overtime costs as necessary to get
company operating again at a crucial time
rd
27. Compare cost of 3 party with in-house charge
28. GST should not be included - input tax credit
Printing equipment
29. Does replacement cost mean used or new?
30. Impact of replacement cost used
31. Insurance company should provide comparable equipment
shoul agree to equipment that comes closest to what it had
no other viable option
32. XP 550 is the appropriate replacement equipment (closest)
33. Insurance co. not willing to pay extra $10,000 for the 750
34. Insurance co. may argue some reduction required for extra
features (550 vs XT 100)
35. Rush delivery charges can be supported based on
minimizing lost sales opportunities (time of year, seasonal
nature of business)
36. Training costs should be covered as they are integral to
equipment (warranty)
Warehouse fixtures
37. Insurance company should be willing to pay for
replacing the fixtures
38. Discussion - definition of replacement cost
39. Candidate considers installation costs included?
Inventory books
40. Initial claim is 100% of cost of books/no allowance for
decline in value
41. Saleability/NRV of books declines over time
42. ReadQ should not be made better off by insurance claim
43. Are last years allowances actually used/still valid?
44. - calc. of amount that should be claimed using allowances
per the audit file

66
58

20
35
18

11
20

1
1

9
2
63

1
1
1

51
41
5

27

41

43
1
1

0
0
2
1

42
29
2
10

81

45.

New equipment is 10% more efficient affects

replacement cost of books

Uniform Final Examination Report 2001 2 1 0

46.
47.

New equipment should reduce costs by 10% then replacement

1
inventory $461,565 (90% of $512,850) or $399,262 (90% of $443,624)
Discussion of whether this saving to the insurance company on
2
expenses should be used to cover the extra cost of the cost saving equipment

1
1

Uniform Final Examination Report

Inventory materials
48. Paper costs have declined 5% therefore replacement cost will be less
than previous cost and claim should be reduced
49. Impact of volume discount/rebatereduces cost of replacing
inventory
50. Should insurance co. or ReadQ benefit from discounts?discuss
Display books
51. Display books could be inventory use RC/NRV
52. Calculate effect of reducing to replacement cost
53. Discussion of whether display books are capital assets
54. - would allow claim of repair costs
Profit on lost sales
55. Profits for permanently forgone sales only can be recovered
56. The insurance co. may argue no lost profit - inventory
will be replaced and sold
57. ReadQ assumed that profit has been lost on all lost inventory
(this is not realistic/very aggressive)
58. Need to determine amount of time that ReadQ is not operating at
normal levels to get an idea of sales that might be lost
Factors affecting ReadQs claim
59. - peak sales season/operating at capacity so loss of production
time means permanent losses
60. - the impact of award winning book on sales
61. - loss of time may render some books less marketable (seasonal
books, eg.)
62. - reduction for old stock
63. - requirement to min. losses through the timely replacement of stock
Promotion costs
64. - may be hard to defend (precedent for effectiveness of the program)
65. - must be based on forecasted sales rather than historical patterns
66. - promotion costs are not caused by insured event, therefore
cannot be reimbursed
67. Calculation of potential adjustment of claim
Other costs
68. Are interest costs covered by the policy?
69. Base interest charge on interest incurred on actual out of pocket
costs
70. Claim is based on amounts being paid and the overdraft
created September 2, the date of the fire, this is not realistic
71. If covered - look at payment dates for items (repairs, cleaning,
equipment)
72. No interest on inventory and lost profit (not out of pocket)

2001 211

71

33
1

4
1
16
14

2
1

1
3

25

23

30

1
1
1

1
42
1

1
1
25

35

36

2
1

1
1

Uniform Final Examination Report

73.

Consider if our fees in assist. with the claim can be included as

a cost item

2001 212

Uniform Final Examination Report

Conclusion
74. Overall recalculation of claim
B.
AVAILABLE 41/MAXIMUM 15
C.

D.

E.

PRELIMINARY OUTLINE OF WORK

75. Examine copy of insurance policy with reason
76. - do we have expertise may require assistance of
lawyer/ insurance expert/forensic accountant
77. Building repairs and cleaning materials: examine
invoices, inspect work
78. Labour examine time sheets, check rates
79. Equipment/fixtures examine invoices/inspect
equipment/review equipment specs
80. - ensure there was no alternative to purchasing the
upgraded equipment/fixtures
81. Examine any insurance inspection reports
82. Quantities based on a comparison of physical count to
perpetual inventory we have not tested or relied on
perpetual system
83. - we also need to verify inventory post-fire (procedure)
84. Impact - may limit assurance we can give
85. Can we reconcile changes since year end physical count
inventory roll forward
86. - vouch purchases, estimate sales since physical count
87. Promotional costs verifying costs not a problem: vouch to invoi
C.
AVAILABLE 6/MAXIMUM 6
storage
OTHER ITEMS
88. Replacement property rules for capital assets tax
consequences avoided
89. Discussion of tax treatment of proceeds
and
90. Special insurance coverage/consider more secure/fire
proof in future
91. Discuss with bank financing available until insurance
claim is settled
92. Discuss with suppliers that they will continue supplying credit
93. Use proceeds from capital assets to fund immediate cash
needs finance replacement equipment
94. Has client filed written notice with insurance company
D.
AVAILABLE 7/MAXIMUM 7
PROFESSIONAL CAPABILITIES:

2001 213

64

20
4

28
31
37

36

1
44

29
8
29

5
1

1
1
1

3
1
1

1
1
1

19
1
1

24

18

95.

Addressed nature of assurance to be provided (in

context of users needs)

Uniform Final Examination Report 2001 2 1 4

96. Analyzed insurance claim components (emphasis on large items)

97. Recognize insurance companys position and provide responses
E.
AVAILABLE 6/MAXIMUM 6

2
2

28
50

F.
OVERALL EVALUATION
A marginally passing candidate must:
98. - analyze major components of the statement of claim
(printing equipment, books inventory, profit loss) and;
99. - address the nature of the engagement (contingent
fees, independence, nature of report)
The candidates response:
100. Did not meet or barely met the Boards expectations and
overall t paper was weak
101. Clearly met, or barely met the Boards expectations, and
overall the paper was adequate
F.
AVAILABLE 5/MAXIMUM 5
AVAILABLE 62/MAXIMUM

72

57
60

40

Uniform Final Examination Report