Case 1.1

Auditing Cases: An Interactive Learning Approach (4th Edition)

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Case 1.1 – Ocean Manufacturing, Inc. [1] 1. Examine the prospective client’s standing in the business community 2. Examine the prospective client’s financial stability 3. Examine the prospective client’s relations with its previous CPA firm 4. Communicate with the predecessor auditor (required) 5. Gather information from local attorneys, other CPAs, banks and other businesses [2] Differences: 1. Ocean’s ROE is significantly lower than the industry’s 2. Ocean’s assets to equity ration is lower than the industry’s 3. Ocean’s accounts receivable turnover is higher than the industry’s 4. Ocean’s debt to equity is significantly lower than the industry’s 5. Ocean’s times interest earned is higher than the industry’s 6. Ocean’s profit margin is lower than the industry’s [3] One non-financial matter that should be considered is if the client is a newely formed, rapidly growing business. If a new business is rapidly growing, there is a greater chance it may fail, leaving the CPA firm exposed to significant potential liability. Another non-financial matter that should be considered is any legal matters the client
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Case 1.1 - Case 1.1 Ocean Manufacturing, Inc. [1] 1....

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