Auditing and Assurance Services 1st Edition by Iris Stuart

Exercise 6

BJ Services
BJ Services, a U.S. company, sells products and services to petroleum companies worldwide. BJ Services, S.A., a wholly owned subsidiary of BJ that operates in Argentina, made illegal payments of $72,000 in 2001 to Argentine customs officials so they would allow the company to import equipment. If the payments had not been made, the equipment would not have cleared customs and would have been returned to Venezuela (the source of the shipment). From 1998 to 2002, other improper payments of $151,000 were made to custom agents to facilitate custom clearance of equipment in Argentina. Once an internal investigation discovered the payments, the board of directors ordered a full investigation into potential foreign corrupt practices violations.
The Foreign Corrupt Practices Act makes bribing foreign officials illegal. The investigation found no indication that anyone in management had approved the payments. The SEC issued a cease-and-desist order against the company, which agreed to improve its internal controls to prevent future illegal payments.
a. In 2001, BJ Services had revenue of $2,233,520,000 and total assets of $1,985,367,000. Calculate the company's materiality.
b. Are the illegal payments quantitatively material Explain your answer.
c. Are the illegal payments material for other reasons Explain your answer.
d. What impact would the illegal payments have on your risk assessment for the company
e. What audit procedures would you perform to control the risk arising from the illegal payments