Ocean Manufacturing

2123 WordsNov 13, 20119 Pages
Case 1.1 – Client Acceptance Question # 1: Identify 5 procedures an auditor should perform in determining whether to accept a client. Which of these five are required by the auditing standards? a. (AU 314) The auditor should obtain an understanding of the entity and its environment in the following areas: i. Client’s application of accounting policies ii. The industry, regulation and other factors affecting the client iii. Client’s objectives , strategies, and related business risks iv. Methods used by the client to measure and review performance v. The client’s internal control The second standard of fieldwork requires that the auditor obtain a sufficient understanding of the…show more content…
Why? a. Client’s reputation. Does the client have good reputation in the industry? Is the prospective client the type of client the firm wants to be associated with? b. The type of business the client operates. The more complex the transaction is, the auditors would need to spend more time in collecting evidence. c. The client’s relationship with previous CPA firm. The successor firm should understand the reason for changing auditors, as well as inquire about any disputes over fees, accounting principles disagreement, management’s integrity. d. Are all accounting records made available to auditors. Incomplete accounting records would constitute a scope limitation. Thus, auditors could only issue qualified or disclaimer opinion, depending on materiality. e. Type of risks to consider when accepting a client. xviii. Fraud risk xix. Audit risk xx. Business risk xxi. Control risk xxii. Inherent risk Question # 4 a. Advantages and disadvantages of having the same CPA firm provide both auditing and consulting services. Advantages: i. CPA firm will have a better understanding of the company’s operation; therefore can provide advice on improvement that will benefit different levels of operation within the company. ii. Cost savings: the cost for hiring one firm for both services
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