Mock Engagement Memo

Memo

Date: 1/15/2012

To: Jane Hunter, Barnes and Fischer, LLP- Partner

From: Timothy Richardson, Audit Senior

Subject: Ocean Manufacturing Risk Factors

Concerning the potential business relationship with Ocean Manufacturing, several aspects deserve proper care. I am writing to discuss the possible implications of accepting Ocean as a client and what specific areas of their company would desire extra attention in the case of acceptance.

* Management’s tendency to aggressively affect year-end accruals

* The audit team should make sure to perform effective completeness/cutoff tests to make sure of appropriate reporting, and put into place adequate controls to further prevent misstatement.

* Implementation of a new IT system

* There may be several issues and risks related to the changeover from the old-to-new system. The team should make sure that all appropriate material is carried over to the new system with correct documentation, and also assure that the new system will function correctly for the company’s purposes.

* Ocean’s preparation for its IPO

* Concerning Ocean’s initial public offering, the team should make certain everything is in place to make the transition smoothly and that all reporting meets GAAP requirements for public companies. Any small hindrances within the statements could be detrimental to Ocean or our firm.

* Accounts receivable turnover ratio

* The audit team should further investigate why this turnover ratio has deteriorated. Procedures should be used to discern as to why credit sales collections have slowed, and should possibly investigate the valuation methods of the company.

* Newly hired Vice President of Operations, and Financial Controller

* Adequate controls need to be assessed and put into effect to assure that any inexperience within the company is offset by strong internal structure. It might be wise to also investigate further into their backgrounds.

While...