1) Client Acceptance and Preliminary Risk assessment

Tasks

Do an Internet and/or library search to determine the current state of the US economy and the household appliance industry.

1) Client acceptance letter. Prepare a client acceptance report to the partner in charge of your engagement and a draft engagement letter. Because so much of the data involved in a client acceptance decision is proprietary and confidential, a simulated case coupled with a public information search will only provide part of the information needed. Therefore, your report will need to contain lists of additional information the audit firm would need to gather before the client acceptance decision is finalized. Address the report to the partner in charge of the audit, which you can assume is your instructor.

Your report should contain the following sections:

A summary of possible client audit and fraud risks that you develop from your review of the publicly available information on the US economy and the firm's unaudited 2014 financial statements as well as the limited industrial data provided in the case.

A description of items you recommend the audit firm research concerning Southwest's managers that would address their ethical character and qualifications to run a firm like Southwest along with a list of possible information sources. Include a short discussion of why you included each item by discussing how it would affect audit and fraud risk.

A description of items you recommend the audit firm research concerning Southwest's relationships with third parties to include customers, vendors, financial institutions the work with, and legal counsel that would be relevant to assess audit risk. Include possible sources of information for each. Include a short discussion of why you included each item by discussing how it would affect audit and fraud risk.

A description of items you recommend the audit firm review internally to determine the need for outside experts on the audit and whether the audit firm is sufficiently independent of Southwest.

A description of the effect on your firm's quality review process if Southwest were to go public. There will be a variety of effect of going public, but limit your response to just the effect on the engagement quality review process.

Your engagement letter should contain the appropriate sections for this type of client. The AICPA provides guidance and sample engagement letters.