Chapter 3 Mini-Case Client Acceptance

In this mini-case you will use Willis and Adams' client acceptance/continuance forms to evaluate the continuance decision for EarthWear as an audit client. One of the most important ways accounting firms manage their risk is by being very careful about which companies they decide to associate with as clients. In the first year, that decision is referred to as the client acceptance decision. In each subsequent year, firms decide whether to continue their association with each client. This subsequent decision process is referred to as the continuance decision. The factors that firms consider for the continuance decision are usually very similar to those considered for the initial acceptance decision.

INSTRUCTIONS:

Please download the files below to complete the audit tasks associated with this mini-case. The Excel workbook contains the instructions and workpapers you are to complete.

11e_Ch3_Mini_case_Client_Cont

Earthwear Background_Ch.3 Client Acceptance

Using your completed Excel file, answer the questions presented below.

Input your responses from Work Paper 3-5 into the corresponding questions below in Connect.

EARTHWEAR CLOTHIERS Client Continuance Evaluation December 31, 2022
General Risk Indicators
Instructions: Evaluate and answer the following unanswered questions regarding the risk of retaining EarthWear as an audit client. Click on the boxes and select either "Yes" or "No" from the drop down menu.		If you selected 'Yes' on any of the questions to the left, provide and explanation below:
Are there any concerns about undue reliance being placed on the results of our work? (i.e. sale of the company, financing)	No
Does the client have any associated entities that are not audited or are being audited by firms outside of Willis and Adams?	No
Have any situations been noted that bear on the integrity of management?	(Click to select) Yes No
Is there evidence that the business is financially distressed?	(Click to select) Yes No
Is the client imposing on us any unreasonable scope or timing restrictions?	No
Is the client's industry or business characterized by significant operating, economic, product, of other commercial risk? (Examples of such risks include: development or start-up stage, high risk industry, an industry with relatively short product lives, or product(s) of unknown or doubtful commercial feasibility.)	No
Are there any pending enforcement matters or other investigations the outcome of which could adversely impact the viability or reputation of the business?	No
Has the information gathering process raised concerns about: unusual or contentious accounting policies, auditing procedures, internal controls, reporting, proper accounting records, tax or regulatory matters?	No
Are there any external conditions or trends that may have a significant impact on the client, such as changes in buyers, changes in suppliers, or new competitors?	No
Are there any internal conditions or trends that may raise concern, such as management turnover or new accounting information systems?	(Click to select) Yes No
Are there any other risk concerns arising out of the information gathering process?	(Click to select) Yes No
		Briefly explain your overall risk assessment of the client:
Overall risk assessment of the client:	(Click to select) High Low
Based on the information gathered, and the above evaluation of engagement continuation risk, recommend whether or not to have Willis and Adams continue to provide service to this client. Click on the yellow box and select either "Retain" or "Dismiss" from the drop down menu.	(Click to select) Dismiss Retain