It is now March 2013 and Jim, the owner of CondoCleaners.com, has requested you work with him in preparing three-year forecast information for the upcoming year end and two subsequent years. Jim intends to use the forecasts, together with the audited financial statements, to seek additional financing to expand the business. Jim is very busy and is counting on you to assist in any way possible. He wants the most supportive opinion possible from your firm to add to the credibility of the forecast. He informs you that he is willing to do anything necessary to help you prepare the forecast.
First, Jim wants projections of sales and revenues and earnings from the existing business, which he believes could continue to be financed from existing capital.
Second, Jim intends to buy a company in a closely related business that is currently operating unsuccessfully (a cleaning franchise that is being poorly managed). He believes that his skills will make the combined company highly successful. He has made an offer on the new business, subject to obtaining proper financing.
REQUIRED
a. Explain circumstances under which it would and would not be acceptable to undertake the engagement.
b. Why is it important that Jim understand the nature of your reporting requirements before the engagement proceeds?
c. What information will Jim have to provide you before you can complete the forecasted statements? Be as specific as possible.
d. Discuss, in as specific terms as possible, the nature of the report you will issue with the forecasts, assuming that you are able to properly complete them