Lee Tower

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Category: Business and Industry

Date Submitted: 06/03/2013 04:36 AM

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When attempting to determine whether Lee Tower should recommend Tierra Corporation as an audit client, a number of factors must first be reviewed and analyzed to determine whether this will be a good ethical fit. According to the textbook, it is very important that a firm considers the engagement risk of a prospective client before accepting them as an audit client. “Auditors will consider the reputation of management and the financial strength and credit rating of a prospective client to help assess the overall risk of association with the particular business.” (Whittington, 187) We can determine whether Tierra Corporation will be a good audit client by reviewing that information.

Since the reputation of management is a good consideration for whether to accept an audit client, Edmond’s highly respected standing in his community is certainly a reason to consider Tierra Corporation as a client. Another reason to consider accepting Tierra Corporation as a client is that both the client’s bank, and attorney gave glowing reviews of the company during the inquiry prior to accepting them as a client.

Some issues did arise during the inquiry stage however that may cause Tower not to consider Tierra Corporation as a client. Tammy Potter is on the chair of a local civic organization that is headed by Edmond the owner of Tierra Corporation. This outside interaction can certainly cause a non-biased third party to consider a breach of independence between the two companies. Edmond also mentioned to Potter that Tierra Corporation was in need of the audit in order to obtain a large amount of additional financing to acquire another company. This does raise a red flag, as noted in the textbook that “Engagement risk is increased when the client company is in a weak financial position or is greatly in need of additional capital.” (Whittington, 187) But the main issue that arises during the inquiry section is that Edmond was found to have fraudulently recorded land in his...