Ocean Manufacturing

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Ocean Manufacturing, Inc.[1] The New-Client Acceptance Decision Learning Objectives * Understand the types of information relevant to evaluating a prospective audit client * List some of the steps an auditor should take in deciding whether to accept a prospective client * Identify and evaluate factors important in the decision to accept or reject a prospective client * Understand the process of making and justifying a recommendation regarding client acceptance The accounting firm of Barnes and Fischer, LLP, is a medium-sized, national US-based CPA firm. The partnership, formed in 1954, now has more than 6,000 professionals on the payroll. The firm mainly provides auditing and tax…show more content…
During the initial meeting with Ocean's management, the following information was obtained about the industry and the company. The Home Appliances Industry Over the past several years, the domestic home appliances industry has been growing at a steady, moderate pace. The industry consists of a wide variety of manufacturers (domestic and foreign) who sell to a large number of wholesale and retail outlets. Though responsive to technological improvements, product marketability is linked to growth in the housing market. Retail outlets are served by both wholesale and manufacturer representatives. Ocean Manufacturing, Inc. Ocean's unaudited December 31, 2004, financial statements report total assets of $76 million, sales revenues of $145 million, and net profit of $3.4 million. In the past, the company has not attempted to expand aggressively or develop new product lines. Rather, it has concentrated on maintaining a steady growth rate by providing reliable products within a moderate to low price range. However, Ocean hopes to use the capital from the upcoming IPO to aggressively expand from a regional to a national market. Ocean primarily sells its products in small quantities to individually owned appliance stores. Over the last few years the company has begun to supply larger quantities to three national retail chains. Two of these larger retailers started buying Ocean's products about two years ago. In order to handle the increased sales, Ocean

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