Discuss audit planning, the purposes for planning the audit, and identify the steps that are performed during this phase of the engagement. (10 points).

2. Bishop and Katulski, a regional accounting firm, is determining whether it wants to accept a new client, Todd Electric. Todd Electric is currently a privately held electrical contractor operating 11 locations in two states, but the company's management is planning an Initial Public Offering in the near future. This is the company's first audit. What steps should Bishop and Katulski take in evaluating this new client? (10 points).

3. Tim Doig, CPA, performed an audit on the Strumpff Company and issued an unqualified opinion. Tim performed the audit with due professional care and in accordance with generally accepted auditing standards. Two months after the report is issued, Tim discovers on the news that the CEO of Strumpff, Kevin Strumpff, has been stealing inventory items. The amount, however, is immaterial compared to the overall inventory of the corporation. Tim soon receives a call from Strumpff's CFO, Rick LaHood. Rick wants Tim to refund the audit fees. Rick thinks Tim did not properly perform the audit, as he did not discover this fraud. Further, he feels that now Strumpff's financial statements are not fairly stated because of Tim. How should Tim respond to this claim? (10 points)