In late April, Mr David Diffident, the Chairman of the Board of DMC Trading Ltd (DMC) a Wholesale business with three warehouses approached Docile and Co to conduct the audit of DMC. Mr Diffident explains that the previous auditor was too expensive, and they are looking for a more economical audit, and are putting the audit out for tender. Mr Diffident asks Mr Docile to quote for the audit. Mr Docile asks you to undertake the preliminary review in preparation for making the quote.

As part of your review of DMC you undertake enquiries of businessmen in the neighbourhood. There is nothing directly adverse known about DMC, however there is a rumour that is circulating that Mr Diffident ran a factory for some years in another state. Further enquiries indicate that this factory failed about fifteen years ago, and rumour has it that Mr Diffident was the main cause of the failure.

On behalf of Mr Docile, you approach Mr Diffident to obtain a letter of authority addressed to the previous auditor to discuss the audit history with you. Mr Diffident explains that he is very disappointed with the previous auditor, and as a result he will not correspond with him at all. On being told this, Mr Docile says the previous auditor was an expensive clown and Docile and Co. will do a much better job than the previous auditor and advises that the audit is to be accepted.

Question 2

Required:

Should Docile and Co have accepted DMC as a client? If not, why not? If so, why so?

(5 Marks)

Question 3

Required:

Now that Docile and Co have accepted DMC as a client, you are instructed by Mr Docile to draft an engagement letter. Briefly set out the key headings you will put in your engagement letter.

(4 Marks)

Please need this ASAP!! ANSWER TO QUESTION 3 IS ONLY REQUIRED..

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