The New Audit Client Acceptance Decision 1

The Auditor, an instructional novella written by James K. Loebbecke, tells the story of Jack Butler, a man from the San Francisco Bay area, who goes to college, majors in accounting, and goes to work for a large accounting firm referred to as “The Firm.” The story is loosely based upon the real world experiences of the author, and is written to give students a look into the world of public accounting that goes beyond a textbook. The Auditor not only gives students a chance to follow Jack Butler’s journey up the company ladder at The Firm, but also reiterates the relative importance of conventional lessons learned in school.

The goal in the life of a college student is graduating and getting the dream job in the career field that is chosen. To achieve this goal takes more than just having the knowledge and heart for the career; it also takes technical skills to be able to perform the tasks. The Auditor: An Instructional Novella stretches beyond the standard textbooks to reveal the principles and practices of auditing as they are in the real world. The book consists of a few key aspects such as: targets students’ natural curiosity about the field of accounting, supports traditional teaching tools, shapes the potential challenges that awaits public accountants.

Knowledge about risks related to the company evaluated as part of the auditor 's client acceptance and retention evaluation; and the relative complexity of the company 's operations. ( Auditing Standard No. 9 //. (n.d.).

Read the auditor’s report included in the annual report of the company and explain its purpose. Identify the name of the auditing firm.

Preliminary analysis to understand the client‘s business and risk - Understanding the auditee’s business, environment, and risks

Under audit planning, the auditor decides whether to accept a new client or continue serving an existing one. This determination is

“Keystone Computers & Networks, Inc. (KCN) is a company that sells and installs computer workstations and networking software to business customers. The CPA firm of Adams, Barnes & Co. has audited the financial statements of KCN for the past three years. The case illustrates selective audit planning working papers that were prepared by the staff of Adams, Barnes & Co. for this year’s audit.” I will be listing the order in which I would perform this audit and I will decide if I should select the client and focus on the key audit objectives while applying the audit risk model.

An important decision for any shareholder is deciding whether or not to do business with that company. When a business is audited, the operations are reviewed to make sure that nothing is being hidden. An auditor will review the company’s financial statement and practices to confirm that each are direct and correct. The financial statements are the business’s way of representing them and showing that they are following the Generally Accepted Accounting Principles. The audit process is an important one because it provides a platform for the auditor’s opinion concerning the financial statements of the company. As part of the audit process the auditor will conduct an audit plan that outlines a number of actions that he or she will be perform while also detailing the reason for those actions. With every audit, the business’s management is in charge of handing over the financial statements that the auditor will review; while the auditor will review the statements for any material or immaterial misstatements.

With this particular case study I will discuss several questions and facts regarding audit client considerations. 1) A brief summary of the case. 2) Identify key behaviors, attitudes and ethical dilemmas (if any) faced by the auditors. 3) Assess the philosophical and practical alternatives summarized in the case questions and evaluations of those solutions. 4) Briefly summarize what I would do faced with this situation in real life.

Use of due professional care, that is, whether the internal audit group has effective quality control

Note: Answer the questions as comprehensively as possible. Reference to Auditing Standards, your textbook, and other relevant authoritative sources is expected where appropriate. Even where some of the questions are quite general, try as much as possible to relate your answer to the case.

It highlights the importance of auditors applying sensitive and ethical judgments in all their engagements. Members have the responsibility to collaborate with each other to improve the art of accounting, as well as to maintain the public’s confidence. The auditor’s responsibilities are essential to an effective audit process because through planning, auditors should to communicate with each other, be very organized and discuss what and how to do things in order to serve the public. One of the most important parts in auditing is planning, for that reason responsibility is a must.

The successor auditor is the auditor who is considering accepting or has already accepted engagement with the new firm. Communication between the predecessor and the successor is important. This information can bring about many issues such as “the predecessor auditor and the client may have disagreed about accounting principles, auditing procedures, or similarly significant matters” (PCAOBUS.org, 2013). The successor auditor should initiate the communication with the predecessor. The reason behind the successor auditor initiating the communication is to obtain valuable information that can lead to whether or not they should accept the engagement. The successor auditor may only request reasonable information to the predecessor auditor pertaining integrity of management, disagreements in accounting principles, auditing procedures, and or other significant matters. In addition, successor auditor can establish communication with audit committees or other with equivalent authority regarding “fraud, illegal acts by clients, and internal control related matters” (PCAOBUS.org, 2013). There are laws of confidentiality that the predecessor must abide by. The predecessor must maintain confidentiality at all times. Due to this confidentiality laws

As you know, our company has been audit Movies R US for eight years, and it is a public company. Now Movies R US wants to change almost all its business model, from DVD rental into online movies download. This means this client needs new IT department to maintain its download application; it needs to dispose of inventories, because Movies R US decided to close 40 of their 50 stores. This new situation will force us to change our traditional audit process. Since this public company decided to reform its business model, the financial statement’s users will be more dependent on audit report we provide to them. Therefore, our auditors need more investigation for this client. As I mentioned before, Movies R US is one of our old clients, we know this company. But we still need in-depth investigating its new business model, controls and risks. In the final, we might have to change our audit report due to the brand new investigation result.

This article initiates with the introduction on what is audit planning. It basically addresses the audit plan strategy of K & S Corporation limited’s Financial Statements. Being an external auditor of the company, key factors to be considered in auditing the financials of the subject company have been discussed in the article. The most significant accounts at risk being materially misstated have been critically examined citing the possible risks associated with such accounts. Last but not the least, the article concludes with recommendations with respect to audit assessment plan of the company. Hence, this article seeks to act as a ready reckoner guide for an audit manager in audit planning of K & S Corporation Limited.