You have been assigned to the audit of Ajax and Sons Housing services Inc. $($ASHS$)$ for its yearended December $31,2022.$ You are very excited about this opportunity as it is your firstassignment since your recent promotion to audit senior and you are anxious to run your ownshow. Your audit partner has given you the following information.The company started $5$ years ago and is in the business of providing repairs to homes in GreaterSudbury and Surrounding areas. There are $4$ main regional managers for Chelmsford & Azilda,The Valley & Garson, Sudbury, and Lively and copper Cliff. The company is owned by AjaxHitherson and his wife, Donna and her brother, Ajaxs brother$-$in law Carl. Their two sons,Raymond and Michael have been in the business since its inception as employees. Carl owns $5\%$of shareholdings but is inactive in the companys day to day operations. He is happy to receivehis share of profits in the form of dividends. Donna oversees the financial information but has noformal training. She is a self$-$taught bookkeeper that used tutorials and you tube to learn how totrack revenues and expenses. The audit partner had a quick interview with Donna who had muchto say about the day$-$to$-$day operations of the business. The conversation was recorded, and thetranscription is included in Appendix $1.$ Ajax has his H$.$B$.$ Comm from Laurentian Universityand is familiar with GAAP.Ajax approached your firm looking to have the books and records audited. While his sonscurrently get along well, he is concerned about future disagreements on the company if theydecide to get married in the future. While they have no ownership of the company now, Ajaxplans to include them as equity owners as part of succession within $5$ to $10$ years. He wants togive his sons some comfort that everything is always checked and is therefore going to be $100\%$accurate.He also wonders about the potential for future growthin europe While the company has proven to beprofitable, ASHS is at a crossroads. Michael is moving to Parry sound and would like to start upa satellite location. In order to accomplish this expansion into Parry Sound and surrounding areasit will need a substantial bank loan. In order to qualify for the loan, the bank has requested acurrent ratio of $2$:$1$ as well as reviewed financial statements. Ajax isnt sure what the bank meansby reviewed financial statements, but he is sure an audit will be good enough. ASHS is not sureit wants to take on the risks associated with the rapid expansion; however, it would like toproceed to see if it qualifies for the loan. Afterwards, in the next year they will decide whetherthey should go forth with expansion.Raymond, on the other hand is the Wild Child of the family. He is currently single and spendsmuch of his free time at the local bars. He has even been known to splurge on a trip to Vegasevery once in a while. He is in charge of ensuring that clients pay their invoices late. Somepayments are received in the form of cash, others by check and some by Etransfers.Getting contractsContracts are obtained by homeowners looking for repair services. Sales staff will receive a call,go to the site and provide a quote, which must be approved by the manager in charge of thatregion. That manager can either increase or lower the quote if a competitor undercuts AHSHsquote. Any unanticipated repairs get billed over and above the quote $($water damage, mold$).$ A$10\%$ deposit is required before any work begins. Once the work is completed the clients have $10$days to pay the final invoicesRequired:$1.$ The audit partner asks you to draft a list of some discussion points he should have with Ajaxand Donna. He really wants to ensure they know what they are getting into in terms of seekingthe assurance services in the form of an audit engagement. He wants this to be drafted as if youwere the one to speak with the client. He is hopeful that next year, you will be the one havingthese conversations, so this is a great opportunity to get comfortable talking with clients$\mathrm{.}2.$ You have been assigned the following areas of planning for this engagement: Assess the firms independence and engagement acceptance next year Discuss the impact of the current ratio on materiality for the engagement Use the audit risk formula to determine detection risk by evaluating internal controls$3.$ The audit partner also wants you to send him an e$-$mail right away of any concerns orconsiderations that he should be made aware of with regards to fraud risks and what yourapproach would be in discussing these with the client.Appendix $1$: Interview with DonnaAudit Partner $($AP$)$: Thanks for meeting with me Donna.Donna: Its great to meet you and I am looking forward to having our books checked out! I amconfident everything will be in order. Ajax makes sure to review the records on a monthly basis.AP: Thats great to hear! So$,$ I just want to gain an understanding of how things operate. Inparticular for when you receive cash. I hear that Michal takes primary responsibility for this area.Donna: Yes, thats right, in a way. He is more in charge of ensuring that things clients dont getto far behind in paying. You know how it is$,$ if you let them do it they will do it$!$ Its Ashley, ouraccounts receivable clerk that does all the hard work. Michael ensures the money gets into thebank, but Ashley is the one who records the cash receipts in the books and records. She is solovely, although I wonder about her sometimes.AP: What is it that you wonder about?Donna: Well, you see, she got this brand$-$new redish shinny corvette a few months ago. Its a bitodd, we dont pay her a lot of money, so I dont see how she can afford it$.$ Anyhow she does herjob and is here every day and hasnt taken any vacation in years. She is very dedicated!AP: Oh$,$ that is very interesting, so what happens after she records the cash receipts?Donna: Oh yes, I apologize I got a little sidetracked. When she records the cash receipts, sheensures it matches the quote, the sales invoice and the completion order. Any additional expensesoutside of the contract are included on the invoice in separate line item. They are also included asnotes on the job completion report. So generally, the contract invoices match the quotes, plus thecompletion order. All outstanding amounts get sent to Michael so he can follow up withcollections. Afterwards I prepare a bank reconciliation and Ajax reviews it at the end of themonth. I may be self$-$trained, but those you tube tutorials can be quite handy!AP: Sounds like you have a good system in place! How does the payment side of transactionswork?Donna: Oh$,$ for that we have George, our accounts payable clerk. Hes got his accounting degreefrom Cambrian college and started with us a few years ago, I think he is quite happy here. Hetakes care of writing the checks, recording them in the books and records and signs them. Ajaxwants to make sure he knows whats coming out of the accounts, so he has makes sure that everyweek George gives him a check list detail and he also has to sign the cheques, or they wont bevalid. This helps him with his review of the bank reconciliations he does every month. He signsthose too, but I think he might have missed July last year, we went on a family trip to Peru!Machu Picchu was quite a spectacular experience!AP: It sounds like you keep very busy. Thank you for taking the time to talk with me today. Iwill be in contact with you as soon to discuss the engagement and the next steps. Take Care!Donna: No problem, you too and talk soon.