Pinnacle Manufacturing Case

2298 Words Apr 2nd, 2013 10 Pages
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INTEGRATED CASE APPLICATION –PINNACLE MANUFACTURING:
PART II
9-37 (Objectives 9-7, 9-8)
In Part I of the case, you performed preliminary analytical procedures for Pinnacle (pp. 245–247). The purpose of Part II is to identify factors influencing risks and the relationship of risks to audit evidence.
During the planning phase of the audit, you met with Pinnacle’s management team and performed other planning activities. You encounter the following situations that you believe may be relevant to the audit:
1. Your firm has an employee who reads and saves articles about issues that may affect key clients. You read an article in the file titled, “EPA Regulations Encouraging Solar-Powered Engines Postponed?” After
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Use each of the three factors in the text to categorize your conclusions:
External users’ reliance on financial statements
Likelihood of financial difficulties
Management integrity
As the Independent Auditor I would require from Pinnacle, the client a Management Representation Letter. This is a letter an auditor is required to obtain from management at the conclusion of fieldwork, confirming representations explicitly or implicitly given to the auditor, indicating and documenting the continuing appropriateness of such representations, and reducing the possibility of misunderstanding regarding the representations.

b. Assess acceptable audit risk as high, medium, or low considering the items you identified in requirement a. (A risky client will be assessed as a low acceptable audit risk.)
I will identify the audit risk as high.
c. Identify inherent risks for the audit of Pinnacle using the information from Parts I and II. For each inherent risk, identify the account or accounts that may be affected. (1)Related Parties – A reporting entity’s affiliates, principal owners, and management also, any members of their immediate families. Points of consideration is a Pinnacle VP owning Todd-Machinery, its repair men working at Pinnacle at the time the auditor was at field work, while standing in front of vending machine.
(2) While reviewing Pinnacle’s long-term debt

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