Case 1 for Accounting

1. Five procedures

a) Review management”

i. Find out the reasons of turnover of upper management

ii. Background of the executives or upper management

iii. How open of the management is to provide information to auditors

b) Communicate with predecessor auditor (required, AU 315, SAS 84)

That is very important and required by AU and SAS. During the communication, we should know the problems of this company and why the predecessor auditor would leave this company. Is that problem still existed? What should we do according to this if we accepted this case.

c) Reason to change audit firm-how many times?

d) Review financial history

iv. Re-audit the audited Financial statements

v. Compare company’s Financial Statements to industry standards

vi. Look at disclosures in the financial statement

vii. Look at litigation risks

e) Review work/business history:

viii. Identify accounting and control risk

ix. Identify the inventory and the method of calculating the inventory and the process about the inventory.

3 Consideration

1 Mr. Steven’s gambling background, which increases the risks of the company’s upper management and would make huge loss for this company.

2 What is the effect if they accept Ocean as a client– i.e. we are not familiar with the industry, etc

3 The executives didn’t allow us to contact the predecessor auditor in the beginning, which indicates that they might try to hide something.

4 Independence issue – a staff in Salt Lake City who owns 0.5% of Ocean’s stocks.