-- TO BE SUBMITTED IN THE DROPBOX BEFORE 11:30PM ON THE DAY OF CLASS -- CLASS 3 – Client Acceptance You are an Audit Manager in a regional accounting firm that has 10 offices in three provinces. Mr. Shine has approached you with a request for an audit. He is president of Hitech Software and Games Inc., a five-year-old company that has recently grown to $40 million in sales and $20 million in total assets. Mr. Shine is thinking about going public with a $17 million issue of common shares, of which $10 million would be a secondary issue of shares he holds. You are very happy about this opportunity because you know Mr. Shine is the new president of Symphony Society board and has made a civic impression since he has come to your medium-sized city seven years ago. Hitech is one of the growing employers in the city. 1 a. Discuss the source of information and the types of enquiries you and the firm’s partners can make in accepting Hitech as a new client. - Reviewing previous information (i.e., financial statements, background checks, and previous audits), to assess client’s integrity. Discuss if anyone owns shares in the firm (assessing own independence) Ensure our firm has the resources to complete the audit (assessing own competencies) Review any threats to our independence (could we have self-interest as Shine has made civic impressions on the city?) b. Does the profession require investigation of prospective clients? - Yes, as a firm we should inquire and ensure we are aware of what the client is asking us, as well as whether we are suitable to comply with audit standards. c. You have found some new information…Do you think the partner in charge should accept Hitech as an audit client? - Based in the information discovered, we do not believe that we should accept the client as Shine had malicious intent in the past, which could lead to further problems down the line. Shine may have changed his ways since the issue ten years ago, but taking the risk would be too much of a risk for our firm. 1 From Smieliauskas & Bewley, 2008. Auditing: An International Approach -- TO BE SUBMITTED IN THE DROPBOX BEFORE 11:30PM ON THE DAY OF CLASS -- The audit manager (who works for W&S partners (the AUDIT FIRM) for Cloud 9 Inc. (the CLIENT) has discovered the following facts and has requested your help to document and assess the factors that affect the client acceptance decision. A. The finance director of Cloud 9, David Collier is married to a distant relation of Paul Nethercott, a partner in W&S Partners’ consulting department. B. The consulting department at W&S partners has quoted on an IT installation project at Cloud 9. The fees from this project, if the tender is successful, would be twice the size of the audit fee. C. A survey of audit staff at W&S Partners has revealed that 30% have purchased Cloud 9’s products (basketball shoes) in the past. D. Four members of the IT department at W&S Partners have shares in retailers that sell Cloud 9’s products. In each case, the shareholdings were disclosed on the firm’s share register, and the size of the shareholding is deemed material under W&S Partners’ ethical guidelines. E. One of W&S’s staff associates on the Cloud 9 audit worked as the payable supervisor at a division of Cloud 9 for the first six months of the fiscal year. He then joined W&S so he could pursue a public accountant’s license. Type of potential threat Self-Interest A B C D E Assessment of threat, incl. relevant case facts Potential for either client to skew information to benefit their relationship Additional actions needed if any, to appropriately assess threat A mix of peer review and partner rotation policies.
