The Buddy Guy Co., a moving and storage firm with operations throughout the Midwest, has contracted with the Memphis Slim Accounting and Consulting Group to evaluate the adequacy of the controls associated with their accounts payable and to test the extent of compliance with them. Memphis Slim received the following letter from Buddy Guy that served as the guide to the engagement:

Buddy Guy Co. has never been audited as they are privately held. However, rapid growth in their business-from a small, 20 -employee, two-location operation to one with more than 200 employees in 17 locations in just a few years-concerns the owners and directors enough to ask for Memphis Slim's help in ensuring that its payables operations are not subject to defalcation and misstatement.

a. Discuss the deficiencies in the engagement letter.

b. Discuss the steps Memphis Slim must take to form a proper conclusion on the effectiveness and completeness of its control plans. What effects will Buddy Guy's rapid growth have on Memphis Slim's testing?

c. Draft an engagement report assuming that no material weaknesses are found.

d. Give an example of a reportable condition that might arise from the testing. How might that condition become a material weakness?

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Dear Mr. Slim, We hereby engage your firm to evaluate the internal controls in our accounts payable function. Such evaluations should include a comprehensive study of the controls with a view toward finding deficiencies in the internal control that could allow material misstatement into the financial statements. In addition, the evaluation should include tests of the controls in place to determine whether the procedures are followed adequately. Attached you will find a brief narrative of the accounts payable process highlighted with the inherent controls. Further information will be provided, of course, at your request. We look forward to your report. Yours sincerely, Buddy Guy President