Auditing Essay

Words: 932
Pages: 4

5(a) Prepare a memo to the partner making a recommendation as to whether Barnes and Fischer should or should not accept Ocean Manufacturing, Inc. as an audit client. Carefully justify your position in light of the information in the case. Include consideration of reasons both for and against acceptance and be sure to address both financial and nonfinancial issues to justify your recommendation.

To: Jane Hunter
From: Corrine
Subject: Ocean Manufactory Should be Accepted
Date: February 3, 2012 Ocean Manufacturing, a medium-sized manufacturer of small home appliances, is our prospective client. First, we should decide whether to accept this client. The purpose is to minimize the likelihood that our auditors will be
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The risk areas are as following:
Home Appliances Industry
The home appliance industry is a new industry for our firm and we have never had a client in this field. That means we are not familiar with this industry and lack the necessary expertise. In order to solve this problem we need specialists who do have the necessary expertise. The specialists’ work in this field can be used by our auditor to obtain sufficient audit evidence.
The company experiences a significant management turnover. The new controller has little relevant experience and is not familiar with the company’s IT system. In this situation, the new controller can attend relevant training and talk to people who have more knowledge about the system to be more to familiar with the system as soon as possible.
Accounting and Control System
The new accounting system which maintains inventory, accounts receivable, accounts payable and so on was not well managed. Some problems will exist in balance sheet account classification and inventory tracking due to untrained personnel. Employees should obtain some training on the new system to help them work efficiently and effectively.Besides, our local office’s IT team can diagnose the control weakness and help them to overcome the difficulties.
Internal management
Some important reports like internal management budget reports and receivable billings are often late