Ocean Manufacturing

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ACCT 805AE Case 4 Ocean Manufacturing, Inc
The Osprey Group
Feb 21, 2011

Q1. The client acceptance process can be quite complex. Identify five procedures an auditor should perform in determining whether to accept a client. Which of these five are required by auditing standards? First they should gather and examine all available financial information, such as tax returns, annual reports, the balance sheet, and income statement. This should be done so that the audit firm can do a quick initial analysis of the prospective client and identify any potential issues early in the process. Then once permission from the prospective client is received, as required by auditing standards, they should consult with the predecessor auditors. The accounting firm should inquire if they were any disagreements about accounting principles, concerns about the integrity of management, or any other significant concerns about the client. These questions should also be asked of other third parties such as the firm’s bankers, creditors, lawyers, or any other third party that may have information about the integrity of the client. This is an important step because if the prospective client has any questionable accounting practices the evidence acquired from third party sources is more reliable. Then a closer look should be taken at the prospective client to see if there are any other unusual circumstances that need to be considered. If the prospective client has any going concern problems, pending litigation, or any other unusual audit risks. If any of these issues are discovered then they should most likely not be taken on as a client. Then some of the last things that they should do is to determine whether the accounting firm has the required technical skills and knowledge of the prospective client to conduct the audit properly and that if acceptance of the client will violate any of the auditing requirements set by regulatory agencies of the Code of Professional Conduct.

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