Scenario

You are an audit manager with a CPA firm that has been approached by a prospective client who wants to engage your firm to perform an audit for the current year. The prospective client is a small financial institution that another CPA previously audited, and your firm has not had any previous experience auditing this industry. You have been assigned to research this prospective client and develop a memo for your CPA firm's director, Sally Stone, about the specific procedures your firm should perform to determine whether to accept the client for audit, as well as what types of knowledge about the client and its environment should be obtained to plan the engagement, and how it should be obtained.

Directions

Create a memo to your CPA firm's director, Sally Stone, detailing the procedures the firm should perform to determine whether to accept the prospective client for audit, other types of knowledge about the client and its environment that should be obtained, and how to obtain it.

Specifically, you must address the following rubric criteria:

1. Specify the sources of information that should be used to obtain knowledge about prospective clients.
2. Outline the types of knowledge about the prospective client that are needed to decide whether to perform the audit.
3. Explain how an auditor can obtain an understanding of the client related to the internal company environment.
4. Describe how an auditor can assess the audit implications of the external industry factors as part of due diligence.