ACC-411-Auditing Principles ACC 411 Module Two Client Suitability Assignment Guidelines and Rubric

Scenario

A partner in your accounting firm has reviewed a potential clients 10-K and has provided you with notes from the client interview. It is your role to conduct due diligence by going through the client suitability assessment to determine if the firm should accept the potential client as a new audit client.

Directions

Using the Client Suitability Interview provided in the Supporting Materials section below, complete the Client Suitability Assessment Template provided in the What to Submit section.

Specifically, you must address the following rubric criteria:

1. Apply due diligence to determine if the potential client is viable by performing the assessment. Include the following: A. Economic factors B. Financial factors

2. Identify risk factors that may require further research.

Consider the following: A. Cyberattacks Offer an opinion on the suitability of the client based on AICPA standards. Include the following:

A. Pros

B. Cons

What to Submit

Submit the completed Module Two Client Suitability Assessment Template for grading.

ACC 411 Module Two Client Suitability Assessment Template

Complete this assessment by replacing the bracketed text with the relevant information.

1. Apply due diligence to determine if a potential client is viable by performing the assessment. (Based on the client interview notes) [Add content here.]

2. Identify risk factors for the potential client that may require further research. [Add content here.]

3. Offer an opinion on the suitability of the potential client based on AICPA standards. [Add content here.]

Supporting Materials The following resources support your work on the assignment: Interview:

Module Two Client Suitability Interview ACC 411 Module Two Client Suitability Interview

Transcript of Meeting with LSB Industries CFO, Tamika Jones Present: Tamika Jones - LSB CFO Ramona Alvez Langley Audit Senior Ramona: Thanks for meeting with me, Tamika Tamika: Youre welcome, Ramona. What can I do for you? Ramona: As part of our due diligence in deciding to take on a new client, I need to ask you some questions about your companys key risks, major business operations, financial strength, and internal controls over financial reporting. Lets start with some risks related to your business and industry. Tamika: We are in the financial services industry, which is highly competitive. We face intense price competition in all areas of our business. In particular, the trading industry is characterized by price competition. We have in the past lowered prices, and, in the United States, increased rebates for trade executions to attempt to gain or maintain market share. These strategies have not always been successful and have at times hurt operating performance. Additionally, we have also been, and may once again be, required to adjust pricing to respond to actions by competitors and new entrants, or due to new SEC regulations, which could adversely impact operating results. Ramona: How about your risk for cyberattacks? Tamika: Our role in the global marketplace may place us at greater risk for a cyberattack. Our systems and operations are vulnerable to damage or interruption from security breaches. Due to COVID-19, most of our workforce has worked, and may continue to work, from home creating a broader and more distributed network footprint and increased reliance on the home networks of employees. While we continue to employ resources to monitor our systems and protect our infrastructure, these measures may prove insufficient depending upon the attack or threat posed. Any system issue, whether as a result of an intentional breach, collateral damage from a new virus or a non-malicious act, could damage our reputation and cause us to lose customers. There can be no assurance we will be able to identify and mitigate every incident involving cybersecurity attacks, breaches, or incidents. Ramona: How about your ability to attract and retain key personnel? Tamika: Our future success depends, in large part, upon our ability to attract and retain highly qualified and skilled professional personnel that can learn and embrace new technologies. In the current tight labor market, we have intensified our efforts to recruit and retain talent. There is no guarantee that we will have the continued service of key employees who we rely upon to execute our business strategy and identify and pursue strategic opportunities and initiatives. Ramona: I see you outsource services and rely on third parties to perform certain functions. How could this affect your business if the parties fail to perform as expected or experience service interruptions? Tamika: We rely on third parties for regulatory, data center, cloud, and data storage. Interruptions or delays in services from our third-party data center hosting facilities or cloud computing platform providers could impair the delivery of our services and harm our business. To the extent that any of our vendors or other third-party service providers experience difficulties or a significant disruption, breach, or outage, that may impact us. Additionally, changes to their business relationship with us or if they are unable for any reason to fulfil their obligations, our business or our reputation may be adversely affected. Ramona: Ive read that your businesses operate in various international markets, including certain emerging markets that are subject to greater political, economic, and social uncertainties than developed countries. Tamika: Our businesses operate in various international markets, including but not limited to Northern Europe, the Baltics, the Middle East, Africa, and Asia, and our non-U.S. operations are subject to the risk inherent in the international environment. Political, economic, or social events or developments in one or more of our non-U.S. locations could adversely affect our operations and financial results. Ramona: Lets turn to your internal operations. What are your risk management procedures? Tamika: We utilize widely accepted methods to identify, assess, monitor, and manage our risks, including oversight of risk management by our Global Risk Management Committee, which is comprised of senior executives. Ramona: I have some questions about your internal control environment. I see your current auditor gave you an unqualified opinion on internal controls over financial reporting. However, a critical item on revenue recognition was reported. Can you elaborate how you oversee revenue recognition transactions? Tamika: We have strong controls in place over the allocation of contract transaction price to performance obligations, including managements review of the estimated margin. We also have several controls that ensure the accuracy of the revenue recognized in the current period by inspecting reports relating to the hours recorded on a project. This includes reviewing all contracts and contract modifications. Ramona: One of the things we look at in taking on a new client is the organization's culture, especially the tone at the top. Can you point out some things your company does in this area? Tamika: We require that all employees read and attest to the companys code of ethics and the companys commitment to ethics policy. We have a robust whistleblower program where employees have several options to report any aberrant behavior and remain anonymous. Both ethics certification and the whistleblower hotline process are SOX controls assessed every year. Our company also has an ongoing commitment to diversity, equity, and inclusion. We have continued our series, Amplifying All Voices, which we initiated in 2020. This year, the program is a multimedia retrospective featuring works of art and photography documenting diverse cultures and life. Ramona: How strong is the companys financial position and its ability to secure credit? Tamika: Our investor call for Q3 2022 highlighted: Third quarter 2022 net revenues increased 6% compared to the third quarter of 2021. Our trading segment's revenues increased 8%, including 10% organic growth, partially offset by a negative 2% FX impact. Annualized recurring revenue increased 8% compared to the third quarter of 2021. Third quarter 2022 GAAP diluted earnings per share increased 5% compared to the third quarter of 2021. Third quarter 2022 non-GAAP diluted earnings per share increased 15% compared to the third quarter of 2021. Also of note, our credit rating according to Moodys is Bbaa2 for senior unsecured debt. Ramona: We have already met with your previous auditors (XYZ Partners). They stated no issues that we should be aware of. Thanks again for your time. Tamika: No problem, feel free to reach out with any follow-up questions or document requests.