Etna and Partners (Etna) is a firm of accountants in a medium-sized town in Quebec. Recently, the senior partner of the firm was approached by the CEO of Dyment Inc. (Dyment) to discuss the possibility of becoming Dyment’s auditor. Dyment is a private corporation with about 150 shareholders, none of whom are involved in the management of the company. In addition, the company has several large loans from banks and other private lenders.

Management has recently come under criticism from shareholders about the poor performance of the company and the CEO has assured the shareholders that a turnaround plan is in place. In the meeting with Etna, the CEO offered that, in addition to the audit engagement, Dyment could benefit from Etna’s expertise in a number of other areas. In particular, as part of the turnaround plan, the CEO said there was a need for a complete review and overhaul of Dyment’s accounting systems. The CEO also felt that Etna could provide expert advice on the turnaround plan itself and ongoing financial and management advice in the future. The audit fee for this client is estimated to be

\($40,000\) per year, which would make Dyment one of Etna’s largest clients. The additional work in the first three years could be as much as \($100,000\) per year.

Required:

The senior partner will be meeting with his partners to discuss the Dyment engagement.

Prepare a report that discusses the appropriateness of accepting the audit engagement and the consulting engagement.