e-Vision Case 071009 edited

e-Vision Case 071009 edited - e-Vision: Business Models,...

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e-Vision: Business Models, Business Risks and Audit Risk Assessment By J. Efrim Boritz and Theophanis Stratopoulos University of Waterloo jeboritz@uwaterloo.ca tstratop@uwaterloo.ca OCTOBER 8, 2007 Key Words: Software Industry; Strategic System Analysis; Business Risk; Audit Risk; Risk Assessment; Acknowledgements: We gratefully acknowledge the funding provided by the KPMG/University of Illinois Business Measurement Program and the University of Waterloo Centre for Information System Assurance.
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2 e-Vision: Business Models, Business Risks and Audit Risk Assessment ABSTRACT: e-Vision is a medical imaging software developer facing several challenges to its business model arising from environmental changes. The challenge for the student is to assess the implications of these challenges for e-Vision’s business model - which includes the company’s environment, business strategy, and key business processes - and determine how they relate to the company’s performance, including their impact on the company’s financial statements. Tracing from environmental changes, to business strategy changes, to internal process changes, and ultimately to financial statement impacts is a complex and challenging task. This case provides an opportunity for the student to evaluate how the facts fit together in order to create a potential audit risk, what accounts need to be focused on when conducting an audit to assess the impact of the identified risk, and what expectations can be developed about how each account would have changed from the prior year given the facts provided. A graphical decision aid is offered as a means to help students see the linkages between environmental changes, strategic responses, internal processes and financial statement accounts and thereby help them perform this task more effectively.
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3 e-VISION COMPANY BACKGROUND e-Vision is a medical imaging software developer. The company has three lines of business. First, it develops diagnostic imaging workflow applications for hospitals, clinics and imaging centres. This end-user application segment consists of many small customers scattered over a large geographic area. Second, e-Vision develops software toolkits to enable large Original Equipment Manufacturers (OEMs) such as GE, Philips, Siemens, Toshiba and Hitachi to develop their own applications for their image processing equipment. While there are many customers for applications, there are only a small number of OEMs to whom e- Vision can market. A third line of business is custom development for OEMs and others and related professional (software engineering) services. Sales of applications and toolkits generate high value contracts with high margins. For example, an application for an imaging clinic could sell for $500,000 while a toolkit for an OEM imaging device could run $5 million. Custom development is charged on a time and materials (T&M) basis, and is not particularly profitable. However it constitutes about a third of the company’s revenue.
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e-Vision Case 071009 edited - e-Vision: Business Models,...

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