The client and our firm have agreed on an initial estimated audit fee of $32,000 (see the engagement letter). However, the estimated total cost of performing this year’s audit is $37,590 (see the fee budget on workpaper 6-5). Discuss possible reasons why a CPA firm might charge a new client an audit fee that is lower than the estimated first-year costs of performing the audit.
The client and our firm have agreed on an initial estimated audit fee of $32,000 (see the engagement letter). However, the estimated total cost of performing this year’s audit is $37,590 (see the fee budget on workpaper 6-5). Discuss possible reasons why a CPA firm might charge a new client an audit fee that is lower than the estimated first-year costs of performing the audit.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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The client and our firm have agreed on an initial estimated audit fee of $32,000 (see the engagement letter). However, the estimated total cost of performing this year’s audit is $37,590 (see the fee budget on workpaper 6-5). Discuss possible reasons why a CPA firm might charge a new client an audit fee that is lower than the estimated first-year costs of performing the audit.

Transcribed Image Text:Oceanview Marine Company
Planning - Fee Budget
December 31, 2018
6-5
BC 11/29/2018
Current Year's Budget
Prior Year's Actual
Hours
Rate
Dollars
Hours
Dollars
FIELD TIME (INTERIM):
N/A
N/A
First year First year
$
Senior
N/A S N/A
N/A
Assistants
N/A
N/A
N/A
Subtotal
N/A
N/A
FIELD TIME (YEAR END):
Senior
54.0
160
S 8,640
Assistants
136.0
110
14,960
Subtotal
190.0
S 23,600
REVIEW AND ENGAGEMENT
MANAGEMENT:
Partner
5.0
400
$ 2,000
Manager
10.0
250
2,500
Other
Senior
28.0
160
4,480
Assistants
42.0
110
4,620
Subtotal
85.0
S 13,600
SERVICES:
Турing proofreading
6.0
50
300
Photocopying
2.0
30
60
Filing
1.0
30
30
Subtotal
9.0
390
$
ESTIMATED TOTAL COSTS
284.0
$ 37,590
$
PROPOSED FEE
$ 32.000
Current workpapers-audit planning + Page 36
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