Auditing

CASE 2 Ocean Manufacturing, Inc. The New Client Acceptance Decision

By MARK S. BEASLEY · FRANK

GLOVER · DOUGLAS F. PRAWITT

A.

BUCKLESS

·

STEVEN

M.

LEARNING OBJECTIVES

After completing and discussing this case you should be able to

[1] Understand the types of information relevant to evaluating a prospective audit

client

[2] List some of the steps an auditor should take in deciding whether to accept a

prospective client

[3] Identify and evaluate factors important to the client acceptance decision

[4]Understand the process of making and justifying a recommendation regarding

client acceptance

INTRODUCTION

The accounting firm of Barnes and Fischer, LLP, is a medium-sized, national CPA

firm. The partnership, formed in 1954, now has over 6,000 professionals on the

payroll. The firm mainly provides auditing and tax services, but it has recently had

success building the information systems consulting side of the business for non-audit

clients and for audit clients that are not publicly traded.

It is mid-January 2012, and you are a newly promoted audit manager in an office of

Barnes and Fischer, located in the Pacific Northwest. You have been a senior auditor

for the past three of your five years with Barnes and Fischer. Your first assignment as

audit manager is to assist an audit partner on a client acceptance decision. The partner

explains to you that the prospective client, Ocean Manufacturing, is a medium-sized

manufacturer of small home appliances. The partner recently met the company’s

president at a local chamber of commerce meeting. The president indicated that, after

some difficult negotiations, the company has decided to terminate its relationship with

its current auditor. The president explained that the main reason for the switch is to

build a relationship with a more nationally established CPA firm because the company

plans to make an initial public offering (IPO) of its common stock within the next few

years....