A. Based on the information below, under what conditions, if any, G. Wee would be allowed to prepare compilation of the financial statements of South Plastics Inc.? 

 

G. Wee is on the board of directors of a small manufacturing company, South Plastics Inc. Wee holds a CPA certificate and is a member of PICPA. The president of the company, J. Gil, has asked Wee to prepare financial statements for the company to be submitted to Metro Bank as part of a loan request. Gil tells Wee that the bank would like a review or an audit, but would settle for a compilation from a CPA. He would like Wee to do the compilation?

B. With respect to audit planning and engagement performance, make an assessment of the following:

 

P. Follosco was recently promoted to senior accountant. He was put in charge of the Mellow Markets audit because of his experience with other grocery clients. Mellow Markets has a small, but growing, chain of natural food stores. This is the first year Mellow Markets has been audited. Because of their growth, Mellow Markets needs additional capital and intend to use their audited financial statements to secure a loan.

Follosco has been assigned two inexperienced staff assistants for the audit. Because this is his first engagement as a senior, he intends to bring the job in on budget. To save time, he provided his assistants with a copy of the audit plan for Happy Time Food Stores. He told them that this would make things go more quickly. He also told them that he could not spend much time with them at the client's place of business, because "my time is billed out at such a high rate, we'll go right over budget." However, he did call them once a day from another audit on which he was working.

After beginning their work, the assistants told Follosco that the audit plan did not always match up with what they found at Mellow Markets. Follosco responded, "just cross out whatever is not relevant in the audit plan and don't add anything - it will only make us go over the budget." When Follosco came to the client near the end of field work, one assistant was concerned that no inventory observation was done at the out-of-town locations of Mellow Markets (the audit plan had stipulated that inventory should be observed for in-town stores only).

Happy Time had only one out-of-town location, while three of Mellow Markets' five stores were in other cities. Follosco told the assistant to get inventory sheets from the client for the other stores and added "make sure that the inventory balance in the general ledger agrees with the total for all the inventory sheets." The next day, Follosco reviewed all audit documentation and submitted the job for review by the manager.