Chapter 6, Problem 1RQ

To determine

Describe the information that a CPA firm seeks in the investigation of a prospective client.

Explanation of Solution

Certified Public Accountant (CPA): It is a position which is provided to the person who passes the exam of the American Institute of Certified Public Accountants (AICPA). The CPA designation helps in establishing the professional standard.

Prospective client: The auditors when coming across any audit proposal from the client, before making any decision to be engaged in such an audit, the auditors will have to gather some information about the client. Such a client can be termed as a prospective client.

Information to be investigated about the prospective client: Information to be gathered during investigation includes the reputation and background of the prospective client, officer, directors, and major shareholders. Other related parties doing business with the entity like inquiries regarding bankers, attorneys, and underwriters. Moreover, the auditors must seek information about the integrity of the management from the predecessor auditors.