You are an audit senior at Morton and Lowe Chartered Accountants LLP. The firm has recently begun to perform audits and has two partners, managers, senior and junior staff accountants respectively. Your firm has recently been approached by Don Cherry, the owner of Maple Leaf Construction, to be engaged in their upcoming audit. The companys bank requires them to submit annual audited financial statements 60 days after year end. In addition to submitting the statements to the bank, the company is bound by specific covenants. If in violation of these covenants the bank will require full payment of the outstanding loan.

The owner tells you that he had never liked his previous auditor Dafnas and Arthurs LLP. Don tells you they would ignore my instructions on how to complete the audit and would threaten to qualify my report if I did not make adjustments to my year end work in process. He advises you not to contact them due to this poor relationship.

Maple Leaf Construction has projects all over the country and has recently been in the news for building new developments in marshy areas, and not building their homes up to code.

The companys controller Phil Kessel is a recent graduate from Nipissing University and has no previous accounting experience. He was hired four months ago after the old controller Dion Phaneuf was caught for defrauding the company for over $80,000 of cash and assets.

Excerpts from financial statements are as follows:

					2012		2011
Cash					(106,584)		76,854
Accounts receivable					1,025,896		658,000
Work in process					-		1,056,000
Capital assets					750,000		750,000
Accounts payable					987,000		648,000
Bank loan					950,000		1,000,000
Billings in excess of work completed					-		650,000
Sales					3,000,000		2,000,000
Cost of Sales					720,000		1,300,000

You have been asked by the engagement partner to analyse whether or not to accept the client.

What are three things to consider (not including engagement risks or preliminary analytical review) when accepting Maple Leaf Construction as a new client (6 marks)