1. Charles Ward, the engagement partner, has already completed the Client Acceptance Form in the permanent file. Based on the information you studied in the Permanent File and the unaudited financial statements included in the Current Workpapers (workpapers 1-1 through 1-5), evaluate the client acceptance decision. Organize your answer using the two-column format shown below.

a. Indicate two favorable factors most important to the client acceptance decision (one factor has been provided as an example).

b. Indicate three concerns you have about accepting Oceanview as a client.

2. Indicate whether you agree with the decision to accept the client. Justify your decision, indicating the one or two factors from your response to the first question that had the greatest influence on your decision.

3. The client and our firm have agreed on an initial estimated audit fee of $29,000 (see the engagement letter). However, the estimated total cost of performing this year?s audit is $37,590 (see the fee budget on workpaper 6-5). Discuss possible reasons why a CPA firm might charge a new client an audit fee that is lower than the estimated first-year costs of performing the audit.

4. Auditing standards require auditors who are considering accepting an audit engagement to communicate with the previous auditors.

a. What is the primary purpose of this communication between the new (successor) and old (predecessor) auditors?

b. Why is the client?s permission required before this communication can take place?

c. The successor auditor also often reviews the predecessor auditor?s workpapers. What is the primary purpose of reviewing these workpapers?

The accompanying notes are an integral part of these financial statements

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ASSETS Current Assets Cash Accounts receivable: net (Notes 2 and 6) Inventories (Notes 1(a), 3, and 5) Prepaid expenses Deposits Total Current Assets Property, Plant, and Equipment (Notes 1(b) and 4) Al cost, less accumulated depreciation TOTAL ASSETS LIABILITIES Current Liablities Oceanview Marine Company Balance Sheet December 31, 2015 Note payable - Bank (Note 5) Accounts payable Accrued liabilities Federal income taxes payable Current portion of long-term debt (Note 6) Total Current Liabilities Long-term Liabiles Long-term debt (Note 6) TOTAL LIABILITIES STOCKHOLDERS' EQUITY Common stock (Note 7) Additional paid-in capital Retained earnings Total Stockholders' Equity TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 2015 2014 $1,320,096 $1,089,978 1,616,016 1,285,603 13,524,349 12,356,400 17,720 7,916 16,516,127 14,753.281 $5,100,000 $4,250,000 1,750,831 1,403,247 257,800 217,003 45,990 5,642 5,921,882 35,284 5,642 7,149,557 15,826 5.484 409,824 7.559,381 595,517 612,480 627,771 $17,112,644 $15,365,761 $14,489,935 10,000 2,500,000 7,043,263 9,553,263 2013 415.466 6,337,348 $1,200,347 1,180,082 11,461,231 15,275 4,329 13,862,164 $4,000,000 1,106,574 211,250 39,725 5,642 5,363,191 421,108 5,784,299 10,000 10,000 2,500,000 2,500,000 6,518.413 6,195,636 9,026,413 8,705,636 $17.112.644 $15,365,761 $14.489,935 1-1 PBC ASSETS Current Assets Cash Accounts receivable: net (Notes 2 and 6) Inventories (Notes 1(a), 3, and 5) Prepaid expenses Deposits Total Current Assets Property, Plant, and Equipment (Notes 1(b) and 4) Al cost, less accumulated depreciation TOTAL ASSETS LIABILITIES Current Liablities Oceanview Marine Company Balance Sheet December 31, 2015 Note payable - Bank (Note 5) Accounts payable Accrued liabilities Federal income taxes payable Current portion of long-term debt (Note 6) Total Current Liabilities Long-term Liabiles Long-term debt (Note 6) TOTAL LIABILITIES STOCKHOLDERS' EQUITY Common stock (Note 7) Additional paid-in capital Retained earnings Total Stockholders' Equity TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 2015 2014 $1,320,096 $1,089,978 1,616,016 1,285,603 13,524,349 12,356,400 17,720 7,916 16,516,127 14,753.281 $5,100,000 $4,250,000 1,750,831 1,403,247 257,800 217,003 45,990 5,642 5,921,882 35,284 5,642 7,149,557 15,826 5.484 409,824 7.559,381 595,517 612,480 627,771 $17,112,644 $15,365,761 $14,489,935 10,000 2,500,000 7,043,263 9,553,263 2013 415.466 6,337,348 $1,200,347 1,180,082 11,461,231 15,275 4,329 13,862,164 $4,000,000 1,106,574 211,250 39,725 5,642 5,363,191 421,108 5,784,299 10,000 10,000 2,500,000 2,500,000 6,518.413 6,195,636 9,026,413 8,705,636 $17.112.644 $15,365,761 $14.489,935 1-1 PBC

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