Ocean Manufacturing

Topics: Accounts receivable, Accounting software, Balance sheet Pages: 2 (596 words) Published: April 21, 2013
Barnes and Fischer, LLP|
To:| Jane Hunter|
From:| Susan Anderson, Elizabeth Lane, Chantal Murphy, Elizabeth Robinson| CC:| Dr. Cashell|
Date:| 3/5/2013|
Re:| Decision on Accepting Ocean Manufacturing as a client| | Recommendation: We recommend that we do not accept Ocean Manufacturing as a client.Justification:There were several issues we considered when making our recommendation:○Independence Violation○No experience in the industry○Can’t do consulting because SOX violation○Red flag with regard to contact to previous auditor○Significant Mgt. Turnover○Unethical behavior (illegal gambling)○3 years ago received qualified opinion○Aggressively accounting to meet creditor’s requirements○New accounting system○Audit trails not kept in tactFirst, we considered possible GAAS and GAAP violations. When reviewing Ocean Manufacturing’s background information, we found that a partner in the Salt Lake City office owns shares in a venture fund which holds a private equity investment in Ocean common stock. This is an independence violation which goes against the second general standard of GAAS. Another GAAS violation could be considered because we have a background in the healthcare service industry and Ocean Manufacturing is in the appliance industry. Since we do not have training in this field, we would be violating the first general standard of GAAS. There is also a SOX violation because Ocean Manufacturing would like us to do consulting and help prepare for the IPO. They also would like us to work with their IT program. This goes against the rules of GAAP. Since they are getting ready to offer an IPO we would be faced with higher litigation risk. Ocean Manufacturing also has various management issues that have raised red flags. The company has experienced high management turnover, which could be an indication of how the company is run on a daily basis. When the vice-president of Ocean was approached to discuss the previous auditor, he was...
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