Question

Instead of a role on the audit committee, assume the role of a partner in a public accounting firm that is considering whether or not to propose on a company that recently issues an RFP.

Required:

(a) List the steps the auditing firm should take when deciding whether or not to propose to a potential client company.

(b) List the important considerations of the firm concerning its staff, industry expertise, and potential engagement profitability.

(c) What should the auditor investigate about the company?

Answer 1

(a) List the steps the auditing firm should take when deciding whether or not to propose to a potential client company.

• First step would be to determine if we want that client
• Secind would be do we have resources to audit effectively
• Third would be the determination of reputation of the client
• Fourth would be to consider the managerial integrity of the client and the potential conflict of interests if any
• If answers to all are affirmative then should take steps to consider approaching the potential client.

(b) List the important considerations of the firm concerning its staff, industry expertise, and potential engagement profitability.

• What exactly client require
• When it would be required
• Are we having knowledge and expertise to conduct the audit
• Are we having resources to audit and review the same
• Is there any threat to independence
• What are the potential risks involved

(c) What should the auditor investigate about the company?

• Accounting disclosures
• Business magazine reports
• SEC Fillings
• Recent managerial changes
• Reason for change in auditor
• Last year financial and ausit reports
• Management qualification and integrity
• Going concern issues
• Future plans
• Loan engagements etc.