Audit 1

Engagement Letter:

LILTS BERGER & ASSOCIATES
Certified Public Accountants
Ocean City, Florida 33140

October 30, 2015

Mr. Donald Phillips, President
Oceanview Marine Company
36 Clearwater Lake Road
Ocean City, Florida 33140

Dear Mr. Phillips:

This letter is to confirm our understanding of the terms of our engagement as the auditors of Oceanview Marine Company for the year ended December 31, 2014.

We will audit the company’s balance sheet for December 31, 2014, and the related statements of income, retained earnings, and cash flows for the year then ended. The purpose of our audit is to form an opinion as to whether these statements are fairly presented in accordance with accounting principles generally accepted in the United States of America. We will review the company’s federal and state income tax returns for the fiscal year ended December 31, 2014. In addition, we will be available to consult with you concerning the tax effects of any transactions or changes in company policies.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of risk of material misstatement of financial statements, whether due to fraud or error. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting principles used by management, as well as evaluating the overall presentation of the financial statements. The purpose of the audit is to verify the validity of the financial statements through an independent process. Therefore, our audit team will be comprised of auditors that are not tied to Oceanview Marine Company and have not been for at least a year. Our audit opinion will be based on our examination, made on a test basis, of your records, documents, assets, and equities. We will not examine all transactions, assets, or equities in detail, and the examination should not be relied on to detect all errors, fraud, or illegal acts that may have taken place. Notwithstanding, should we discover material misstatements resulting from error, fraud, or illegal acts during our audit, they will be disclosed to you. Please note that management of the company has the primary responsibility for maintaining adequate accounting records, for the safeguarding of assets, and for the preparation of accurate financial statements. If, for any reason, we are unable to complete the audit or are unable to form or have not formed an opinion, we may decline to express an opinion or decline to issue a report as a result of the engagement.

Because of the inherent limitations of an audit, together with the inherent limitations of internal control, an unavoidable risk that some material misstatements may not be detected exists although the audit is properly planned and performed in accordance with generally accepted accounting principles.

In making our risk assessments, we consider internal control relevant to the entity’s preparation and presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. However, we will communicate with you any significant deficiencies or material weaknesses in internal control relevant to the audit of the financial statements that we have identified during the audit.

Our audit will be conducted on the basis that the management of Oceanview Marine Company acknowledges and understands that it has responsibility
a. For the preparation and fair presentation of financial statements in accordance with the accounting principles generally accepted in the United States of America;
b. For the design, implementation, and maintenance of internal control relevant to the fair presentation of financial statements that are free from material misstatement, whether due to fraud or error;
c. To provide us with access to all information that management is aware that is relevant to the preparation of the financial statements such as records, documentation, and other matters; additional information that we may request from management for the purpose of the audit; and unrestricted access to from persons within the entity from whom we determine it necessary to obtain audit evidence.
As a part of our audit, we will request from management written confirmation concerning representations made to us in connection with the audit.

We will issue a written report upon completion of the audit of Oceanview Marine Company’s financial statements. Our report will be addressed to the Board of Directors of Oceanview Marine Company. If we cannot provide assurance, then an unqualified opinion will be expressed. Circumstances may arise in which it is necessary to modify our opinion, add an emphasis-of-matter or other-matter paragraph, or withdraw of the engagement.

The timing of our services is scheduled for performance and completion as follows: Begin interim fieldwork: December 1, 2015 Completion of fieldwork: March 15, 2016 Delivery of management letter: March 22, 2016 Delivery of audit report: March 29, 2016 Delivery of tax return: March 29, 2016

Our fees will be based on our standard hourly rates. Invoices will be submitted periodically as work progresses and are payable upon presentation. Should we find any condition that could significantly change our initial estimate of total fees of $29,000, we will notify you immediately.

Please sign and return the attached copy of this letter to indicate your acknowledgement of, and agreement with, the arrangements of our audit of the financial statements, including our respective responsibilities.

Yours very truly,
Charles Ward, CPA

1.
Favoring Acceptance
Acceptance Concerns
1. Because both the CPA firm and the company are located in Ocean City, Florida, it is a favorable situation for all the auditors traveling to this site. This will also contribute to the overall knowledge and familiarity of the auditors with the company and the region.
1. Because the CPA firm is located so close to Oceanview, we must be concerned with the possibility that some auditors may have a preference for this firm and may be too familiar with it. Although there is no indication that management has any ties to the CPA firm, the close proximity may lead to a friendship that could damage the integrity of the audit.
2. The financial statements are well-organized and easy to locate all relevant information. They support that Oceanview is a healthy company for the past three years.
2. There is a contingent liability that has not been included in their financial statements. This could lead to undisclosed issues they may be hiding.
3. For the past three years, they have been audited annually by reputable accounting firms in accordance with their bank and management decisions.
3. Their credit line allows them to utilize a large amount of assets, 6.5 Million, but their current balance of debt, 5.1 Million, seems high if the company is looking to expand in the future.

2. There were no blatantly apparent reason for not being able to trust Oceanview Marine’s financial statements. They were laid out well and easy to read through. Because the past audits have gone well and produced solid financial statements, we can expect to continue this trend. We can also expect that because the auditors will have a deep understanding of the overall Ocean City market there will be better insight into the business operations of this company. Last, the most convincing piece of evidence for the acceptance of the audit is the consistent financial health that is exemplified in their past financial statements. We can expect this company to have long term client potential as they plan to grow.

3. There are a few reasons why it may be a good strategy to delay billing Oceanview for the actual amount of billed hours for the first audit. The first reason is that they will be able to more easily secure the client for another period if they are priced lower than the actual costs. Secondly, they do not know what they have been paying in the past and could make a better transition at a lower price. Last, because this is the first audit of this company, the firm may waste a lot of time figuring out minor logistical things that don’t contribute all that much to the audit and therefore shouldn’t be billed.