ACC614 Week 2 Discussion 1 Client Selection

• Discuss the sources of information and the types of inquiries you and the firm’s partners may make concerning accepting Hitech as a new client.

Inquiries and research into the following areas may help the company decide whether or not to take Hitech on as a client:

1. Accounting Reports

2. Deposit and withdrawal slips from banks and other financial organizations.

3. Professionals who have acted as legal advisors or auditors in the recent or present past

4. SEC Form 10-K Annual Reports

5. Existing relationships with suppliers, customers, and debtors

• Do professional audit standards require any investigation of prospective clients? Why or why not?

According to the AICPA’s quality control guideline, auditing companies should research their potential clients before accepting them as customers. To safeguard the integrity of the information included in financial statements for the business and its stakeholders, these investigations ensure audit companies are aware of the reputations and integrity of potential clients.

In addition, it provides an opening for external auditors to reduce risks. Whether an auditing company is given a chance to research a possible client, the firm may decide if the market is worth entering, if the client is trustworthy, and if the firm is ready to sacrifice its reputation for the client.

• Suppose Shine also told you that his closely-held hamburger franchise business went bankrupt ten years ago. Upon investigation, you discover from former auditors (your firm in another city) that Shine was fraudulent in applying franchise-fee income recognition rules and presented such difficulties that your firm resigned from the audit (before the bankruptcy). Should the partner in charge of the audit practice accept Hitech as a new client?

Suppose this information was supplied to the partner in charge. In that case, I recommend that they not accept Hitech as a new customer since the company has shown that it lacks credibility by participating in fraudulent actions. This will safeguard the auditing company from any possible conflicts or misstatements that may arise as a result of dishonest or unethical behavior.

References

Louwers, T. J., Ramsay, R. J., Sinason, D. H., Strawser, J. R., & Thibodeau, J. C. (2015). Auditing & assurance services (6th ed.). New York, NY: McGraw-Hill. ISBN: 9780077862343.