\begin{tabular}{|l|l|} \hline \multicolumn{2}{|c|}{ X Answer is complete but not entirely correct. } \\ \hline 1. & Explain to Lancaster the need to inquire of Smith and Smith and request permission to make such inquiries. \\ \hline 2. & AskLancastertoauthorizeSmithandSmithtorespondfullytoallinquiriesbecauseSmithandSmithwouldbeprohibitedfromdisclosingconfidentialinformationwithoutformerclientpermission. \\ \hline 3. & AdviseSmithandSmithofLancastersdecisiontochangeauditors.AdvisingSmithandSmithwouldbeagoodbusinessjudgmentaswellasanactofprofessionalcourtesy. \\ \hline 4. & MakereasonableinquiriesofSmithandSmithregardingmattersthatwillaidindecidingwhethertoaccepttheengagement.(AOWshouldaskaboutfactsthatmightbearontheintegrityofmanagement,disagreementswithmanagementaboutaccountingandauditingmatters,andSmithandSmithunderstandingofthereason[s]forthechangeofauditors.) \\ \hline 5. & IfSmithandSmithdoesnotrespondfullytoAOWsquestions,considertheimplicationsofthelimitedresponseindecidingwhethertoaccepttheengagement. \\ \hline 6. & UseproceduressuchasreviewingApollosfinancialstatements;inquiringofthirdpartiessuchasApollosbanks,legalcounsel,investmentbankers,andothersinthebusinesscommunityastoApollosreputation;andevaluatingAOWsabilitytoserveLancasterandApolloproperlywithreferencetoindustryexpertise,sizeofengagement,andavailablestaff.ThisisdoneinefforttosatisfyAOWsqualitycontrolobjectives. \\ \hline 7. & InformLancasterthatafirst-timeauditismoretimeconsumingthanarecurringauditbecausethenewauditteamisgenerallyunfamiliarwiththeclientsoperationsanddoesnothavethebenefitofpastknowledgeofcompanyaffairstouseasaguide. \\ \hline 8. & DiscusswithLancastertheestimatedrequiredaudittimeandfeearrangementwithaclearexplanationofthepurposeandscopeoftheaudit.Anyworkthatcanbedonebyclientpersonnelshouldalsobediscussedsothatexcessaudittimemightbeeliminatedandproposedreportdeadlinescanbereasonablymet. \\ \hline 9. & Accepttheengagementandconfirmtheunderstandingsinanengagementletter. \\ \hline \end{tabular}