You are a newly minted partner with Yuvathasan, Vong and Vara LLP (YVV). You have been provided with the following financial information for Chemicals R Us Ltd. (CRU), an importer of raw chemicals, and have been asked to consider and report on their acceptability as an audit client and also to begin planning for an audit.

Additional Information:

1. As a result of the pandemic, revenues have dropped in the last year due to a slower economy. This has reduced volumes as well as global prices.
2. Chemicals are imported from all over the world in either finished form or raw form. Due to commodity price fluctuations, many of their purchases are on forward contracts. CRU also engage in currency hedging. A forward contract is a customized contract between two parties to buy or sell an asset at a specified price on a future date.
3. Management is very experienced. While small, members of the accounting department have averaged over ten years with the company. CRU’s VP Finance was with Ernst & Whinney LLP along with one of your senior partners, Gabrielle Markland over twenty years ago. They remain good friends and Ms. Markland is a shareholder and on the board of directors.
4. CRU is a public company. Their previous auditors, Coopers & Lybrand LLP, merged with Ernst & Whinney LLP, who also audits CRU’s major competitor. CRU is concerned about the confidentiality of their information and has approached your firm YVV to quote for the business.
5. CRU has always had a clean audit opinion. They have very tight reporting deadlines and a standard December 31 year end.
6. CRU has had environmental control problems related to the storage of chemicals as well as runoff of chemicals used in processing. They have indicated they are negotiating a bank loan to build a processing plant in Indonesia where the environmental laws are not so strict. YVV currently has no affiliates or offices in Indonesia.
7. From an initial review of the financial information (provided below), you have noticed the following: 1. The cost of goods sold has increased while sales and inventory has fallen; 2. Receivables have increased while sales have fallen; and 3. Amortization has not changed in line with the fixed assets.

	($'000)
	20X2	20X1	20X0
Cash	4,301	4,090	6,823
Receivables	9,882	8,988	7,988
Inventory	7,080	8,213	6,962
Capital assets	13,700	14,500	11,000
	34,963	35,791	32,773
Trade payables	5,004	4,200	4,175
Common shares	10,000	10,000	7,500
Retained earnings	19,959	21,591	21,098
	34,963	35,791	32,773
Sales	33,711	35,863	34,155
Cost of sales	29,364	26,939	25,620
Operating expenses	4,317	4,191	3,810
Amortization	1,200	1,260	1,260
Taxes	(538)	1,480	1,500
Net profit	(632)	1,993	1,965
Dividends	1,000	1,500	1,200

Answer rating: 100% (QA)

To accept the offer of Audit below points need to be considered previous years financials of the company auditors remarks in audit report the reason w... View the full answer