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5(a) Prepare a idiota to the spouse making a recommendation whether or not Barnes and Fischer ought to or probably should not accept Water Manufacturing, Incorporation. as a great audit client. Carefully warrant your position because of the information in the case.

Include consideration of reasons both equally for and against approval and be sure to address both financial and non-financial concerns to warrant your recommendation. MEMORANDUM To: Jane Hunter From: Corrine Subject: Water Manufactory Should be Accepted Date: February three or more, 2012 Marine Manufacturing, a medium-sized producer of small home appliances, is our prospective client.

First, we ought to decide whether to accept this kind of client. The idea is to reduce the likelihood that our auditors will probably be associated with consumers who lack integrity. We could reduce the risk that materials misstatements may possibly exist but not be discovered by the creator. Therefore , we must investigate the customer and obtain certain information that we need. The first step to evaluate the customer is to consult with the forerunner auditor. The client granted me personally permission to make contact with the previous auditor and this individual indicated the problems the organization had with Ocean: (1) complexities and problems with Ocean’s new IT system 2) management’s tendency to aggressively reflect year-end accruals to be able to meet creditors’ requirements As far as we know the corporation switched into a new program in 2011 and the transition towards the system has not been well managed. The company was working to improve the system to make it better. Also, our local office’s IT staff is fairly comfortable they will be able to diagnose Ocean’s control weakness and help Marine overcome current difficulties. Therefore , the system can be not an barrier for our firm to simply accept the client.

To fulfill creditors’ requirements, the administration inappropriately mirrored year-end accruals. The information reflected on the sincerity of administration, which might be a risk for us to accept the customer. According to the predecessor’s assertion, the reason behind the change of auditor is a disagreement over the cost. And the president of Water Manufacturing suggested that the major reason for the switch is to build a romance with a even more nationally set up CPA company. Whatever the authentic reason is usually, neither will be serious problem with regards to accepting the consumer.

We can make reference to the payment in the involvement letter prior to all the auditing work start. We terribly lack a client in the house appliance sector and the industry has been growing at a stable peace. Therefore , the engagement will be a wonderful opportunity for the company to enter a brand new market. According to the financial reviews, we can get several information: In December thirty-one, 2011, the financial statement indicates a net income of $3. 4 mil and the net earnings will be increasing gradually from 2009 to 2011, which means the corporation has potential to some extent.

Relating to all the info, we find that the client will be able to be acknowledged. 5(b) Prepare a separate memo to the partner briefly listing and discussing the 5 to 6 most important factors or risk areas that could likely influence how the review is executed if the Sea engagement is accepted. Make sure to indicate certain ways in which the audit firm should customize its strategy based on the factors you identify. MEMORANDUM To: Jane Hunter From: Corrine Subject matter: the Risk Areas if the Marine Manufactory is usually Accepted Time: February 5, 2012 Water Manufactory is known as a potential firm and so is a industry.

When ever our company accepts the client, we may have an opportunity to explore the new marketplace. Nevertheless, we could not neglects the risk all of us face. There are some risk areas we should consider since they will more than likely affect the way the audit can be conducted. The chance areas happen to be as following: Home Appliances Industry The home equipment industry is known as a new industry for each of our firm and that we have never a new client from this field. Which means we are not really acquainted with this sector and absence the necessary competence. In order to resolve this problem we need specialists whom do have the necessary experience. The specialists’ work n this field can be used simply by our auditor to obtain satisfactory audit data. Management The organization experiences a significant management yield. The new control mechanism has small relevant knowledge and is not really acquainted with the company’s THIS system. With this situation, the newest controller can attend relevant training and talk to people who have more knowledge about the system being more to familiar with the program as soon as possible. Accounting and Control System The new accounting program which retains inventory, accounts receivable, accounts payable etc was not very well managed.

A lot of problems can exist in balance sheet accounts classification and inventory tracking due to untrained personnel. Personnel should get hold of some training on the fresh system to help them work efficiently and effectively. Besides, our community office’s THAT team may diagnose the control weak point and help them to overcome the difficulties. Internal managing Some important reports like internal management budget information and receivable billings are usually late and inaccurate. The weak managing will result in various serious complications.

The Water Manufactory should strengthen the internal management and improve the efficiency of the risk management control. Just in this way, the accountants could get the accurate and timely reports which can be significant to our auditing procedure. 5. Based on the previous auditor, the administration tends to indicate the accruals aggressively to be able to meet the creditors’ requirement. Facing the situation, we have to try to speak to the management to figure it out. If the declaration of the previous auditor is valid, we is going to suggest the management to reflect the accruals accurately.

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