The minutes of the board of directors of the Tetonic Metals Company for the year ended December 31, 2014, were provided to you.
MEETING OF MARCH 5, 2015
The meeting of the board of directors of Tetonic Metals was called to order by James Cook, the chair of the board, at 8:30 a.m. The following directors were in attendance:
Irene Arnold
Robert Beardsley
Mary Beth Cape
James Cook
Larry Holden
Heather Jackson
Brian McDonald
Tony Williams
The board approved the minutes from the November 22, 2014, meeting.
The board reviewed the financial statements for the most recent fiscal year, which ended December 31, 2014. Due to strong operating results, the board declared an increase in the annual dividend to common shareholders from $0.32 to $0.36 per common share payable on May 10, 2015, to shareholders of record on April 25, 2015. Tony Williams, CEO, led a discussion of the seven core strategic initiatives in the 2014-16 strategic plan. The most immediate initiative is the expansion of Tetonic operations into Western Canada. The board approved an increased budget for 2015 administrative expenses of $1 million to open offices in the Calgary, Alberta, area.
Williams also led a discussion of a proposed acquisition of one of Tetonic's smaller competitors. The board discussed synergies that might be possible if the operations of the acquired company could be successfully integrated with the operations of Tetonic. The board granted Williams and the
management team approval to continue negotiations with the other company's board and management.
The board continued its discussion from prior meetings about the October 2014 environmental protection report regarding dust impact at Tetonic's zinc refineries. Legal counsel for Tetonic updated the board on the status of negotiations with the EPA regarding findings contained in the report. The board asked management to include an update on the status of any resolutions for its next meeting. The board also asked management to schedule a conference call, if necessary, for the board if issues need to be resolved before the next meeting.
Officer bonuses for the year ended December 31, 2014, were approved for payment on April 14, 2014, as follows:
Tony Williams, chief executive officer.......... $275 000
Mary Beth Cape, chief operating officer......... $150 000
Bob Browning, chief financial officer............ $125 000
The audit committee and the compensation committee provided an update of issues discussed at each of their respective meetings.
The meeting adjourned at 5:30 p.m.
MEETING OF OCTOBER 21, 2015
The meeting of the board of directors of Tetonic Metals was called to order by James Cook, the chair of the board, at 8:30 a.m. The following directors were in attendance:
Irene Arnold
Robert Beardsley
Mary Beth Cape
James Cook
Larry Holden
Heather Jackson
Brian McDonald
Tony Williams
The board approved the minutes from the March 5, 2015, meeting.
Tony Williams, CEO, provided an overview of financial performance and operating results for the nine months
ended September 30, 2015. Given the volatility in the economy, Tetonic sales have fallen by over 8 percent compared to the same period in 2014. To address the drop in revenues, Tetonic has scaled back mining operations by a similar percentage to reduce labour and shipping costs.
Bob Browning, CFO, updated the board on discussions with banks that will be financing the acquisition of the Tetonic competitor. The terms of the $7 million financing include a floating interest rate that is 2 percent above prime over the 10-year life of the loan. Payments will be made quarterly and Tetonic will have to maintain compliance with certain loan covenant restrictions that are tied to financial performance. The board approved the acquisition and related loan transaction and scheduled a closing date for the financing to be November 1, 2015. To prepare for the proposed acquisition, the board approved an increase in the capital expenditures budget of $1.5 million to cover costs of expanding computer operations, including new servers. The new equipment is needed to successfully integrate IT operations at Tetonic and the acquired company. The equipment will be installed in December 2015. Existing equipment that was purchased in 2013 will no longer be used in the IT operations at Tetonic
The board discussed the creation of an incentive stock option plan for senior executives as a way to better align management and shareholder incentives. Consultants from a compensation advisory firm and tax attorneys from a national accounting firm led a discussion of the components of the proposed plan, including discussion of the related tax implications. The board asked the consultants to revise the plan based on comments received at the meeting for presentation at the board's next meeting.
Tetonic's external auditor provided an update of its interim work related to tests of the operating effectiveness of internal controls over financial reporting. The audit partner presented a written report that provided information about three deficiencies in internal control considered to be significant by the auditor.
Legal counsel for Tetonic updated the board on final resolution of the EPA report findings. The final settlement requires Tetonic to modify some of the air handling equipment at its zinc refineries that is expected to cost about $400 000. No other penalties were imposed by the EPA. The audit committee and the compensation committee provided an update of issues discussed at each of their respective meetings.
REQUIRED
a. How do you, as the auditor, know that all minutes have been made available to you?
b. Read the minutes of the meetings of March 5 and October 21. Use the following format to list and explain information that is relevant for the 2015 audit:
Information Relevant to 2014 Audit................... Audit Action Required
1.
2.
c. Read the minutes of the meeting of March 5, 2014. Did any of that information pertain to the December 31, 2013, audit? Explain what the auditor should have done during the December 31, 2013, audit with respect to 2014 minutes.