• You are a CPA in a regional firm that has 5 offices in three states. Mrs. Shine has approached you with a request for an audit. She is president of LoTech Software and Games, Inc., a five-year-old company that has recently grown to $600 million in sales and $200 million in total assets. Mrs. Shine is thinking about going public with a $25 million issue of common stock, of which $10 million would be a secondary issue of shares she holds. You are very happy about this opportunity because you know Mrs. Shine is the new president of the Symphony Society board and has made quite a civic impression since she came to your medium-size city seven years ago. Lotech is one of the growing employers in the city.
• Discuss the sources of information AND types of inquiries you and the firms partners can make in connection with accepting Lotech as a new client.
• Do professional audit standards require any investigation of prospective clients?
• Suppose Mrs. Shine has told you that 10 years ago her closely held donut franchise business went bankrupt, and upon investigation you learn from its former auditors that Shine played fast and loose with franchise-fee income recognition rules. Do you think the partner in charge of the audit practice should accept Lotech as a new client? Why or why not?