Ocean Manuf Essays

1096 Words 5 Pages


1. The client acceptance process can be quite complex. Identify five procedures an auditor should perform in determining whether to accept a client. Which of these five are required by auditing standards?

2. What nonfinancial matters should be considered before accepting Ocean as a client? Howimportant are these issues to the client acceptance decision? Why?

3. Using Ocean’s financial information, perform the following analytical procedures in order to gather valuable planning information. You can use spreadsheet, and be sure to turn in a printout of your work:
(a) Change Analysis. Calculate the dollar and percentage increase or decrease in the various balance
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Establish and state your decision threshold for selecting accounts to be flagged for further examination. For example, you may decide to seek explanations for changes exceeding 20% or $5,000. For each such account that you identify, provide two plausible reasons for the fluctuation in the account: (1) first, a logical and reasonable business (operational) reason; (2) second, a possible client error (or irregularity) that may have caused the account to be misstated. For example, if the balance of accounts receivable is significantly higher in the current year than in the previous year, an obvious business reason is that sales have increased. A possible client error is inclusion of January sales in December. In this situation, the auditor’s concern is that sales were not recorded in the correct time period. The possible effect of this error is overstatement of Sales Revenue on the income statement and Accounts Receivable on the balance sheet. (Hint: refer to on your audit text for the types of errors that may affect the various accounts.)

(2) Analysis of Questionable Accounts. Discuss other accounts that may appear questionable, for example accounts that do not change when a change is expected.

(3) Assessment of the Risk of Financial Failure. Audit clients that are experiencing operational problems or are near bankruptcy

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