9 Assume that Smith & Smith, CPAS, audited Apollo Shoes Inc., last year. Now CEO Larry Lancaster wishes to engage Anderson, Olds,and Watershed, CPAS (AOW) to audit its annual financial statements. Lancaster is generally pleased with the services provided bySmith & Smith, but he thinks the audit work was too detalled and interfered excessively with normal office routines. AOW has askedLancaster to inform Smith & Smith of the decision to change auditors, but he does not wish to do so.Required:Select the order of the steps AOW should follow with regard to dealing with a predecessor auditor and a new client before acceptingthe engagement.Advise Smith & Smith of Lancaster's decision to change auditors. Advising Smith & Smith would be a goodbusiness judgment as well as an act of professional courtesy.Accept the engagement and confirm the understandings in an engagement letter if AOW has noreservations and after all significant factors have been considered, discussed, and agreed to.Make reasonable inquiries of Smith & Smith regarding matters that will aid in deciding whether to acceptthe engagement. (AOW should ask about facts that might bear on the integrity of management,disagreements with management about accounting and auditing matters, and Smith & Smith' understandingof the reason[s] for the change of auditors.)Explain to Lancaster the need to inquire of Smith & Smith and request permission to make such inquiries. 1Discuss with Lancaster the estimated required audit time and fee arrangement with a clear explanation ofthe purpose and scope of the audit. Any work that can be done by client personnel should also bediscussed so that excess audit time might be eliminated and proposed report deadlines can be reasonablymet.To satisfy AOW's quality control objective, use procedures such as reviewing Apollo's financial statements;inquiring of third parties such as Apollo's banks, legal counsel, investment bankers, and others in thebusiness community as to Apollo's reputation; and evaluating AOW's ability to serve Lancaster and Apolloproperly with reference to industry expertise, size of engagement, and available staff.If Smith & Smith does not respond fully to AOW's questions, consider the implications of the limitedresponse in deciding whether to accept the engagement.Ask Lancaster to authorize Smith & Smith to respond fully to all inquiries because Smith & Smith would beprohibited from disclosing confidential information without former client permission.After weighing all information received from Smith & Smith, inform Lancaster that a first time audit is moretime consuming than a recurring audit because the new audit team is generally unfamiliar with the client'soperations and does not have the benefit of past knowledge of company affairs to use as a guide.

we need to have complete understanding of aggreing with the terms of engagements

Answered: Required: Select the order of the steps…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter3: Cost Behavior

Section: Chapter Questions

Problem 22E: Ginnian and Fitch, a regional accounting firm, performs yearly audits on a number of different...

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Assume that Smith & Smith, CPAs, audited Apollo Shoes Inc., last year. Now CEO Larry Lancaster wishes to engage Anderson, Olds, and Watershed, CPAs (AOW) to audit its annual financial statements. Lancaster is generally pleased with the services provided by Smith & Smith, buthe thinks the audit work was too detailed and interfered excessively with normal office routines. AOW has asked Lancaster to inform Smith & Smith of the decision to change auditors, but he does not wish to do so.Required:List and discuss the steps AOW should follow with regard to dealing with a predecessor auditor and a new client before accepting the engagement.
You are an audit manager at Hall & Associates, who have been approached to conduct the audit of Computer Games Ltd (CGL), a manufacturer of interactive computer games, for the year ended 30 June 2013.Hall & Associates has not previously audited CGL’s financial report, although it has undertaken other types of engagements for CGL. Last year CGL hired Hall & Associates to assist in the redesign ofCGL’s accounting software to ensure that internal controls over internet sales were adequate to ensure the confidentiality of customer data and accuracy of recording. The new software was implemented at the beginning of the current year and appears to be working satisfactorily. As part of this year’s audit,youexpectto reviewtheinternalcontrolsatCGL,includingthecontrolswithintheITsystems.As part of CGL’s financing arrangements with its bank, Easymoney Ltd, it has a loan covenant that stipulates that the quick asset ratio cannot be less than 1:1 or Easymoney Ltd has the right to…
Jones & Jones, CPAS, a one-office public accounting firm, has been asked to audit Majestic Mfg. Co. for the 20X3 calendar year. Majestic is not a public interest entity as that term is defined in the Conceptual Framework for AICPA Independence Standards. A survey of Jones & Jones personnel revealed several instances where relationships with Majestic might impair independence. The partners of Jones & Jones want the audit engagement, but they will not terminate any staff person or ask any partner to resign to obtain the work. With the restriction on non-termination of partners or staff, which of the following is a threat to Jones and Jones' independence with Majestic? 1. Olson, a professional staff person, below the rank of manager, has been employed full time with Jones & Jones since August 20X2. Olson was also a director of Majestic for the first nine months of 20X2. II. Swanson is a manager with Jones & Jones. He had been treasurer of Majestic from January 20X0 through March 20X2. He…
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