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Discussion questions:
1. Charles Ward, the engagement partner, has already completed the Client
Acceptance Form in the permanent file. Based on the information you studied in the
Permanent File and the unaudited financial statements included in the current work
papers (work papers 1-1 through 1-5), evaluate the client acceptance decision.
Organize your answer using the two-column format shown below. a. Indicate two favorable factors most important to the client acceptance decision (one factor has
been provided as an example). b. Indicate three concerns you have about accepting Oceanview as a client.
Factors Favoring Acceptance Concerns about Acceptance 1.
Responses to inquiries of predecessor
auditor were complimentary about
Oceanview. The predecessor auditor spoke
highly of Oceanview’s employees’ integrity, competence, and dedication to running a successful business.
1.
One concern is that the company does
not charge on accounts receivables unless it is more than $500 and has more than 90 days outstanding. A customer can buy a boat interest-free
for the first three months. 2.
There is certainty that Lilts Berger & Associates are independent from Oceanview and there would not be any unbiased taking on this client this means that the financial statements provided by management are true and clear representations of the company’s financial stance. 2.
Don graduated from Florida State University obtained
an accounting degree and worked for a CPA firm before taking over the company however, when the company grew it created a severe cash shortage causing the company to have to look for an outside investor whom they have an inflated balloon loan with.
3.
The predecessor's high regard for the company gives
the successor auditor a great positive look at the company and the fact that there was no disagreement or conflict with the client shows that the client would be great to work with. 3.
In 2006 the IRS assessed the company $28,000 for underpayment of taxes and penalties this is a red flag
due to Don being an accountant. 2. Indicate whether you agree with the decision to accept the client. Justify your decision, indicating the one or two factors from your response to the first question that had the greatest influence on your decision.
I don’t agree with the decision to accept Oceanview Marine Company as a client, the factors that go into this decision are the fact that the company does not charge the customer any interest for 90 days when obtaining a boat this is what may have caused the reason for the client to have to search for outside investors, lastly, Don obtained his accounting degree but the company was assessed a 28,000 dollar
penalty for underpayment of taxes that is a red flag some illegal activity could be going on that caused that.
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