Case 2 Internal Controls

Case # 1

Ocean Manufacturing, Inc.: The New Client Acceptance Decision

Prepared by Jennifer Vance

September 5, 2010

Summary

Barnes and Fisher, LLP, CPA firm offers audit and tax services to its clients. Recently, the organization has expanded services to include information-system consulting for non-audit clients and privately owned organizations. Barnes and Fisher primarily provide audit services in the healthcare industry, however, Barnes and Fisher has the opportunity to enter into a new market. Ocean Manufacturing, an organization specializing in manufacturing small home appliances, has expressed an interest in hiring Barnes and Fisher to provide a variety of services for the organization. If Barnes and Fisher accepts the engagement services would include; reporting on the organizations December 31, 2008 financials, recommendations for better utilization of the organization’s information technology system and consulting services in regards to preparing Ocean Manufacturing for transitioning from a privately owned to a publicly owned company. Barnes and Fischer believe the firm can benefit from entering into a business relationship with Ocean Manufacturing, however, the firm recognizes several risks associated with accepting Ocean Manufacturing as a potential client. The most significant issues that lead to an increase in risk are (1) the receipt of a qualified opinion in 2006 (2) experience of significant management turnover (3) illegal gambling charges and (4) dissolution of the current contract between Ocean Manufacturing and the predecessor auditor due to disagreements. Prior to making an acceptance decision, Barnes and Fischer should further investigate these issues to evaluate the risk associated with accepting the engagement, as well as, to determine if Barnes and Fisher can provide the services desired by the client.

When considering acceptance of Ocean Manufacturing, this auditor will focus on six main areas. These areas will include...