You are the managing partner of Berke & Co., CPAs. On February 2, 1999, you receive a letter from the president of Barbizon, Inc., requesting the following: "We have made arrangements with Farmers Loan and Trust to borrow $125,000 to finance the purchase of new equipment. The bank has asked us to submit audited financial statements for the fiscal year ended December 31, 1998." Barbizon has not been audited previously and requests that you perform the audit.

Required:

1. Can you accept the engagement? Explain.

2. Assuming you accept the engagement, what can be done about confirming December 31, 1998 accounts receivable balances with debtors and observing December 31, 1998 physical inventory quantities—two auditing procedures that you would have conducted if the engagement were accepted prior to December 31?