Case Study:

You are the successful audit partner in a mid-sized accounting firm that you created after graduating from College ten years ago. At a recent Alumni Party, you meet someone from your graduating class. A conversation ensues and this person tells you that he has a successful business. One thing leads to another, and he mentions to you that he is seeking a new auditing firm to certify his firms financial statements for the prior year. If things go right, he says, there is the possibility that his firm may go public, or merge with a much larger company. The following issues take place as you begin the relationship. Please explain how you would handle each situation.

A. When you meet your partners the next day in your office, everyone agrees in principle to pursue the audit work. Discuss briefly what document(s) should be sent, and what information should the document include before commencing any work. Who is the proper party to send the document to? At what point would you actually begin the audit?

B. While the new client is reviewing the document(s), they agree to allow you to contact the predecessor auditors. Why would you want to contact them? What kind of information do you expect to obtain? If the predecessor auditor is uncooperative what situation may cause your firm to withdraw, or issue a disclaimer opinion?