Chapter 7: Professional Simulation - You will find this assignment at the end of Chapter 7

Early in 20x4 Hawkins & Co., CPAs was approached about bidding on the audit of Big Dog Construction (BDC). BDC is a construction company that lays sewer and waste treatment pipe, and builds pipelines to transport oil and natural gas. BDC's major clients are cities, counties, and energy companies. BDC is privately owned. "Big Dog" Herman, and his three brothers own 100 percent of the company, which has grown to the size where sales hit $95 million dollars in the fiscal year 20x3.

The senior partner of Hawkins & Co., is preparing a bid for the 20x4 audit of BDC. He has asked you to assist him in the process. He is aware of the professional standards require communication with the predecessor auditor, and he wants you to research the relevant professional standards. Identify the auditing standards that explain the what should be discussed in the inquiry of the predecessor auditor. Do this by indicating in the space below the appropriate AU section paragraphs that identify what should be included in an inquiry of the predecessor auditor.

1. AU Section Paragraphs ______

Identify the issues that should be discussed as part of the communication between the predecessor and successor auditors.

Included in Discussion with Predecessor Auditor

1. Information that might bear on the integrity of management.
2. Disagreements with management about accounting principles.
3. The predecessor's understanding of the reasons for the change in auditors.
4. The extent of procedures performed in the prior year.
5. Communication with the audit committee about fraud or illegal acts.
6. Disagreements with management about auditing matters.
7. The predecessor's evaluation of internal control.
8. Communication with the audit committee about auditor independence.

During inquiry of the predecessor auditor and other professionals the senior partner learns that BDC has just been engaged to construct an oil pipeline across environmentally sensitive land. The client is a major oil company, and all required permits have apparently been obtained. The partner wants to ensure that the audit complies with all professional standards on understanding the industry, regulatory, and other external factors.Draft a memo(no title page) to Mr. Hawkins explaining what should be included in the auditor's understanding of industry, regulatory, and other external factors. For each key item, explain why the understanding is relevant to the audit.

To: Robert Hawkins, Senior Partner

Re: Factors that influence the reliability of confirmations