RoboDesigns Inc. produces robotic parts for the food manufacturing industry. It is a private company owned by two equal shareholders: James and Sarah. They started the company in 2015 and were initially quite successful. The robotics parts are challenging to develop and, if manufactured improperly, due to the nature of the use (food manufacturing), could result in significant liability. For example, if the parts manufactured by the company are found to be the cause of food contamination, it would place RoboDesigns Inc. at risk of a lawsuit. In fact, one of their major customers is currently investigating the cause of contamination in one of their food production facilities. Sarah feels it is unlikely, however, it is yet unknown whether there will be liability related to RoboDesigns Inc. as a result of the investigation.

In recent years, the business has had its struggles. There is more competition, and they are finding it more difficult to retain key staff due to a competitive employment market for finance and IT professionals in the area. James and Sarah are finding themselves more involved in the business over the 18 months. They are now directly performing key accounting and finance functions as most of the turnover has been within the accounting team.

They have made the difficult decision to sell the business this year and have an interested buyer. Audited financial statements are a requirement of the loan agreement for the buyer.

Your audit firm has been appointed the new auditor this year. Robotics is a specialized field, and your firm is excited to work with a new type of company despite not having any IT or engineering specialists in the firm. The previous auditor was a small local firm, and the owner retired last year after a disciplinary hearing regarding inappropriate professional behaviour unsuitable for CPAs.

• Review the clients financial statement information in Appendix A: Financial Statement Information.
• Review the clients list of IT General Controls in Appendix B: IT General Control Listing.

Required

There are three (3) parts to this project as follows:

PART A: Client Acceptance.

Summarize the responses to the following items (1 and 2) in a memo to your audit manager expressing your perspective / concerns.

1. Assume RoboDesigns Inc. has not yet been accepted as a client. What factors should you consider before accepting this client (state and explain three). Please, you must relate it to the case facts. 2. If your firm decides to accept the client, what issue arises that could violate the CPAs code of conduct and auditing standards? How can it be addressed?

PART B: Risk Assessment and Materiality.

Prepare a second memo that presents the following information to your audit manager:

1. A risk assessment of the client (consider industry, company, and economy) and determination of the corresponding inherent risk level (High, Moderate, Low).
2. Identify the users that should be considered when determining materiality and their needs.
3. Recommendation for materiality:
   1. Indicate the base (benchmark) of materiality would you use and why. (Be sure to consider both quantitative and qualitative factors).
   2. Calculation of materiality
4. Assume that control risk is set at high. Advise what level detection risk should be set at and the implication it will have on the audit strategy and approach

PART C: Internal Controls

You are now preparing to test the following IT General Controls of RoboDesigns Inc. You have been asked to create audit procedures for each IT General Control listed in Appendix B: IT General Control Listing. Complete the table provided outlining the audit procedures you would perform to test the design and operating effectiveness of these IT general controls.

• Part A memo should be 500-700 words
• Part B memo should be 800-1000 words (including calculations and tables (if used for risk assessment)
• Part C should be submitted, using the table provided in Appendix B: IT General Control Listing

Appendix A: Financial Statement Information The following are the figures from the client's financial statements for the current and previous year. Condensed Income Statement Appendix B: IT General Control Listing \begin{tabular}{|l|l|} \hline IT General Control Description & Recommended Audit Procedure \\ \hline Access control: & \\ All users have unique usernames and there are strong password controls in place. \\ including the following: \\ minimum length of eight characters & \\ - no reuse of previous password & \\ System development control: \\ An appropriate project/program management policy is in place and is followed to \\ ensure that the requirements for the system are appropriately captured and \\ delivered as part of the development of the new system (the system performs its \\ operations as expected). \end{tabular}