Crest Outfitters is a relatively young company, started in 2010 out of the garage of Peter Crest. Peter is a
Crest Outfitters is a relatively young company, started in 2010 out of the garage of Peter Crest. Peter is a photographer and travels for 10 months of the year around the world capturing images for publications such as National Geographic and various other agencies. Peter was frustrated with the accessories available for his camera equipment out in the field. They weren’t constructed for easy access, fast adjustment or long hikes and Peter began sketching out ideas for new accessories to help photographers focus on taking great shots and worrying less about their gear. Peter approached Anjani Pulapaka, a friend from university, and together they designed the One Camera Strap (OCS), a strap that was easily adjustable, non-slip and could be easily attached to and removed from any camera.
Peter and Anjani used their own savings to build 3D printed prototypes of the metal and plastic components for the OCS. However, they did not have funds to take their prototype to mass production. Peter and Anjani turned to Felix Wong, a Chartered Accountant and photography enthusiast. Felix outlined three potential sources of funding: obtaining a loan from a bank, using their own savings or seeking investors. Peter and Anjani had used their savings to build and test a prototype but the banks were reluctant to loan them funds based on that alone. Felix advised them that they could seek private investors; however, Anjani had recently seen a piece online about crowdsourcing funds for projects like theirs. Rather than seek a small number of large dollar private investors, they could approach the general public for funds. They investigated crowdfunding platforms and decided to use Kickstarter.
Kickstarter is an online platform that allows designers to obtain funds from the general public to help them create a new product. Those who agree to support a campaign are called ‘backers’ and they ‘pledge’ funds to a Kickstarter campaign and receive some ‘reward’ in return. That reward could be as small as a shout-out on a website or social media, but is most commonly (for physical goods) receiving one of the project’s products at a discount. Kickstarter acts as a connection platform — the company doesn’t take any responsibility for whether creators actually make the product they’re seeking to crowdfund. Kickstarter earns its revenue by taking a small percentage of funds that creators receive.
In 2011, Crest Outfitters created a Kickstarter campaign for $50 000 to help bring the OCS to market. The response on the platform was overwhelming and in 30 days, Crest Outfitters had received pledges for $560 000. Peter and Anjani used these funds (less fees paid to Kickstarter) to begin mass production of their product, and sold and shipped 3500 units across the world. All remaining funds, after paying for production, shipping and other costs, were used to invest in new product designs. The company also pledged 1 per cent of all profits to be donated to environmental protection causes.
Crest Outfitters has created a loyal customer base through constant contact and communication using the Kickstarter platform and other social media outlets such as Facebook and YouTube. Products were.pngted to influential photographers for reviews and write-ups online. The Crest Outfitters customer community has regular input into what products the company should produce next and each year the company launches a new Kickstarter campaign for their latest product to help finance initial manufacturing costs.
The Crest Outfitters brand now has a cult following among photographers and social media influencers worldwide. By 2020, Crest Outfitters had grown to employ 35 people in Australia and another 18 around the globe. Anjani now acts as the Chief Executive Officer (CEO) and Peter is Chief Product Design Officer (CPDO). The company has created other camera accessories such as bags and tripods and is also moving into general travel accessories.
Crest Outfitters wants to spearhead a new era of corporate social responsibility, even though it is are a privately-owned company (with long-term employees as shareholders) and there are no plans to list on a public stock exchange or accept venture funding capital — the company wants to promote transparency in their financial and non-financial information. Peter Crest is on the Board of Directors of Climate Neutral, an independent not-for-profit that provides a certificate for companies and brands whose products and services are climate neutral. Crest Outfitters will be one of the first organisations to receive Climate Neutral certification and will require assurance over their climate emissions report.
Crest Outfitters has approached Felix Wong’s accounting practice AuditTek to conduct the assurance engagement required to help them achieve their business objectives. While Felix did provide some accounting advice to Crest Outfitters in its early days, he has not been involved in the operations and now must consider how to provide this potential client with the services they need.
In preparation for a meeting with Anjani and Peter, Felix plans to recommend that Crest Outfitters have its financial statements audited and climate emissions report assured to the Climate Neutral standards. It will be critical to clearly explain audit and assurance engagements to Anjani and Peter so that there is no confusion about the services and outputs they will receive.
AuditTek is a medium sized practice that focuses on providing accounting services to its clients and has three divisions based on the services it provides: audit and assurance, tax and bookkeeping. Staff in these divisions work in separate areas of the AuditTek offices. The bookkeeping division consists of three Australian-based staff members and another 10 staff based in Manila, the Philippines. All audit and assurance and tax staff are based in Australia. The largest part of AuditTek’s business is providing audit and assurance engagements.
Anjani and Peter are listening to Felix’s presentation about the types of assurance engagements they might purchase to help them fulfil their desires for financial and non-financial transparency. They understand that the Corporations Act 2001 does not require them to produce any of these reports, but they want their company to be a leader in this area and go above and beyond. Ben James, Crest Outfitters’ Chief Financial Officer (CFO), is also present at this meeting.
Anjani and Peter are slightly confused when Felix begins to discuss with them the various types of audit opinions, using terms such as ‘unmodified’ versus ‘modified’ and explaining what exactly ‘unqualified’ means. However, Ben understands this language, having previously worked as a financial controller at a publicly listed firm. Anjani has some questions for Ben and Felix, including:
• Will AuditTek be reporting on the quality of their decision-making as company executives?
• Will customers and users of the financial statements and the audit report understand what the technical language means?
• Would receiving a modified opinion affect Crest Outfitters’ ability to raise funds on Kickstarter in any way?
• How might the company convey this information in a format and language that is more digestible for the everyday person?
(a) Why might Crest Outfitters wish to disclose information — both financial and non-financial — to the public when the Corporations Act doesn’t require them to? What benefit is it to the company? Could there be any negative consequences?
(b) How would Felix explain the differences between the various types of assurance engagements? In answering this question, differentiate between a financial report audit and assurance on the climate emissions report and climate neutral certification.
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