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attachment_5.docx - You are an audit partner in a Small CPA...

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You are an audit partner in a Small CPA firm. One of the audit managers who works for you,Alan Robinson, has emailed you about a prospective audit client, Stanley Thornton, with whomhe has been talking. Mr. Robinson is concerned because the prospective client has made it clearthat if he hires your firm, he will expect your firm to be his advocate and always act in his bestinterests. In other words,Mr. Thornton expects your firm to be in a relationship with him similarto the relationship he has with is attorney. Alan Robinson is a little uncomfortable with thatexpectation, but does not know how to respond. He is seeking advice. Reply to Mr. Robinson’semail advising him todiscuss the necessity for independence in the audit,the broaderresponsibilities of a CPA firm, andhow CPA firms differ from other professionals in that regard.Elaborate upon these issues, giving Mr. Robinson some ideas of how to explain them to Mr.Thornton.Research:(1) Evaluate the CPA firm's independence with respect to the prospective audit client.(2) Explain to the prospective client the need to make inquiries of the predecessor auditor, requestingthat the client authorize the predecessor auditor to respond fully and to allow a review of thepredecessor's audit working papers.(3) Make inquiries of the predecessor auditor concerning such matters as the integrity of management,any disagreements with management as to accounting principles, the reason for the change in auditors,and any other matters affecting the decision of whether to accept the engagement.(4) Make inquiries of other appropriate third parties regarding the history of the prospective client andthe reputations of its management and directors. These third parties may include the client's bankers,legal counsel, and underwriters.(5) Obtain a knowledge of the client's business activities and business environment. Sources of thisinformation include inquiries of management and others within the organization, inspection of internaldocuments and records, the client's website, AICPA accounting and audit guides, registration statementsand Form 10-Ks filed with the SEC, interim financial statements, income tax returns, and credit reports.(6) Consider any special problems or unique risks likely to be associated with the engagement.(7) Hold preliminary meetings with management and the audit committee to discuss such matters as thescope of the services to be performed, timing of the performance and completion of the audit, basis forthe fee, and work that may be done by the client's staff in preparation for the audit.Upon acceptance of the engagement, Morgan should issue an engagement letter summarizing thearrangements reached with the client.

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Term
Spring
Professor
miss ayesha
Tags
Financial audit, CPA firms

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