In this mini-case you will use Willis and Adams client acceptance/continuance forms to evaluate the continuance decision for EarthWear as an audit client. One of the most important ways accounting firms manage their risk is by being very careful about which companies they decide to associate with as clients. In the first year, that decision is referred to as the client acceptance decision. In each subsequent year, firms decide whether to continue their association with each client. This subsequent decision process is referred to as the continuance decision. The factors that firms consider for the continuance decision are usually very similar to those considered for the initial acceptance decision INSTRUCTIONS: Read the background information on EarthWear to prepare to evaluate the company as a continuing audit client. To open the background document please click on the following icon (a document will open in Microsoft Word) Earthwear Background Review EarthWear's unaudited 2016 financial statements including the "Balance Sheet", "income Statement", and "Cash Flow worksheets to obtain a better understanding of the client and to assess its current financial condition. A senior auditor from your firm has already calculated some financial and industry ratlos to help with the continuance decision. Compare EarthWear's ratios to the Industry ratios provided on the "Ratios worksheet. Pay particular attention to items that might be helpful in determining whether or not to continue with EarthWear as an audit client. Review the Willis and Adams' client acceptance/continuance forms Work Papers 31. 32. 33 and 34, which have already been completed. Complete the remaining questions on Work Paper 3-5 using Information from the background and financial statement information: Evaluate and answer the following unanswered questions regarding the risk of retaining EarthWear as an audit client. If you selected "Yes' on any of the questions to the left, provide an explanation. EARTHWEAR CLOTHIERS Client Continuance Evaluation December 31, 2016 Yes or No Explanation Na General Risk Indicators Are there any concerns about undue reliance being placed on the results of our work? (ise sale of the company, financing) Does the client have any associated entities that are not audited or are being audited by fires outside of willis and Adams? NO Have any situations been noted that bear on the integrity of management? (Click to solo) (Click to select) Is there evidence that the business is financially distressed? Is the client imposing on us any unreasonable scope or timing restrictions? To Or Is the climt's industry business characterized by significant operating, economie, product, of other commercial Fisk? (Examples of such risks include: development or start upstage, high risk industry, an industry with relatively short product lives, or product(s) of unknown or doubtful comercial feasibility.) No No Are there any pending enforcement matters or other investigations the outcome of which could adversely impact the viability or reputation of the business? Has the information gathering process raised concerns about: unusual or contentious accounting policies, auditing procedures, internal controls, reporting, proper accounting records, tax or regulatory matters? No Are there any external conditions or trends that may have a significant impact on the client, such as changes in buyers, changes in suppliers, or new competitors? No Are there any internal conditions or trends that may raise concern, such as management turnover or new accounting information systems? (Click to select) (Click to select) Are there any other risk concerns arising out of the information gathering process? What is the Overall risk assessment of the client? High O Low conca racines of the FOR What the overall risk assessment of the cliente High LOW Briefly explain your overall risk assessment of the cent? Based on the information gathered and the above evaluation of engagement continuation risk, recommend whether or not to have Willis and Adams continue to provide service to this dient. Select the "Retain" or "Dismiss below Dismiss Retain In this mini-case you will use Willis and Adams client acceptance/continuance forms to evaluate the continuance decision for EarthWear as an audit client. One of the most important ways accounting firms manage their risk is by being very careful about which companies they decide to associate with as clients. In the first year, that decision is referred to as the client acceptance decision. In each subsequent year, firms decide whether to continue their association with each client. This subsequent decision process is referred to as the continuance decision. The factors that firms consider for the continuance decision are usually very similar to those considered for the initial acceptance decision INSTRUCTIONS: Read the background information on EarthWear to prepare to evaluate the company as a continuing audit client. To open the background document please click on the following icon (a document will open in Microsoft Word) Earthwear Background Review EarthWear's unaudited 2016 financial statements including the "Balance Sheet", "income Statement", and "Cash Flow worksheets to obtain a better understanding of the client and to assess its current financial condition. A senior auditor from your firm has already calculated some financial and industry ratlos to help with the continuance decision. Compare EarthWear's ratios to the Industry ratios provided on the "Ratios worksheet. Pay particular attention to items that might be helpful in determining whether or not to continue with EarthWear as an audit client. Review the Willis and Adams' client acceptance/continuance forms Work Papers 31. 32. 33 and 34, which have already been completed. Complete the remaining questions on Work Paper 3-5 using Information from the background and financial statement information: Evaluate and answer the following unanswered questions regarding the risk of retaining EarthWear as an audit client. If you selected "Yes' on any of the questions to the left, provide an explanation. EARTHWEAR CLOTHIERS Client Continuance Evaluation December 31, 2016 Yes or No Explanation Na General Risk Indicators Are there any concerns about undue reliance being placed on the results of our work? (ise sale of the company, financing) Does the client have any associated entities that are not audited or are being audited by fires outside of willis and Adams? NO Have any situations been noted that bear on the integrity of management? (Click to solo) (Click to select) Is there evidence that the business is financially distressed? Is the client imposing on us any unreasonable scope or timing restrictions? To Or Is the climt's industry business characterized by significant operating, economie, product, of other commercial Fisk? (Examples of such risks include: development or start upstage, high risk industry, an industry with relatively short product lives, or product(s) of unknown or doubtful comercial feasibility.) No No Are there any pending enforcement matters or other investigations the outcome of which could adversely impact the viability or reputation of the business? Has the information gathering process raised concerns about: unusual or contentious accounting policies, auditing procedures, internal controls, reporting, proper accounting records, tax or regulatory matters? No Are there any external conditions or trends that may have a significant impact on the client, such as changes in buyers, changes in suppliers, or new competitors? No Are there any internal conditions or trends that may raise concern, such as management turnover or new accounting information systems? (Click to select) (Click to select) Are there any other risk concerns arising out of the information gathering process? What is the Overall risk assessment of the client? High O Low conca racines of the FOR What the overall risk assessment of the cliente High LOW Briefly explain your overall risk assessment of the cent? Based on the information gathered and the above evaluation of engagement continuation risk, recommend whether or not to have Willis and Adams continue to provide service to this dient. Select the "Retain" or "Dismiss below Dismiss Retain