Ocean Manufacturing, Inc

Ocean Manufacturing, Inc - 1. The client acceptance process...

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1. The client acceptance process can be quite complex. Identify five procedures an auditor should perform in determining whether to accept a client. Which of these five are required by auditing standards? a. Independence AU Sec 220 and ET Section 101 require that the auditor must maintain independence in mental attitude in all matters relating to the audit. The auditor must be without bias with respect to the client since otherwise he would lack that impartiality necessary for the dependability of his findings, however excellent his technical proficiency may be. In this case, a partner in Barnes and Fischer’s Salt Lake City office owns shares in a venture capital fund which in turn holds a private equity investment in Ocean common stock. This investment represents just over a half of one percent of the value of the fund’s total holdings. According to ET Section 101, this small portion of investment does not constitute impairment of independence. b. Technically competent QC Sec 10.31 points out that the firm personnel must have capabilities and competence to do the audit, and must be able to complete the engagement within the reporting deadline. Firm can hire specialist to assist their work. AU Section 210 also mentioned the auditor must have adequate technical training and proficiency to perform the audit. Employees of Barnes and Fischer are confident that they can effectively gain the necessary knowledge and they can help the potential client with its accounting system.
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c. Understanding the client’s background It’s very important to do the background check of the client. Auditor can gain an understanding of client’s business and industry by touring client facilities; review the financial history of the client, like, previous audit reports and tax returns. Auditor can use media or data research to find out if the potential client is reputable. Management integrity is important to the auditing firm also. It increases the possibility that what management telling them is truthful and that the documents and information they are inspecting are valid and legitimate. d. Communication with predecessor auditors AU Section 315 states an auditor should not accept an engagement until the communications with predecessor have been evaluated. In a new client relationship, it is mandatory to make inquiries of the predecessor auditor. Client permission is needed. If the client is unwilling to agree to this procedure, the auditor should consider the implications and decide whether to accept the engagement. Those inquiries should be made regarding to information that might
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This note was uploaded on 09/20/2011 for the course ACC 631 taught by Professor Jones during the Spring '11 term at UNC Greensboro.

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Ocean Manufacturing, Inc - 1. The client acceptance process...

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