You are a PA in an accounting firm that has 10 offices in three provinces. Mr. Shine has approached you with a request for an audit. He is president of Hitech Software and Games Inc., a five-year-old company that has recently grown to $40 million in sales and $20 million in total assets. Mr. Shine is thinking about going public with a $17 million issue of common shares, of which $10 million would be a secondary issue of shares he holds. You are very happy about this opportunity because Mr. Shine is the new president of the Symphony Society board and has made quite a civic impression since he came to your medium-size city seven years ago. Hitech is one of the growing employers in the city.
a. Discuss the sources of information and the types of enquiries you and the firm’s partners can make in connection with accepting Hitech as a new client.
b. Do professional conduct/ethics codes require any investigation of prospective clients?
c. Suppose Mr. Shine also told you that 10 years ago his closely held hamburger franchise business went bankrupt, and you learn from its former auditors (your own firm) that Shine played fast and loose with franchise-fee income recognition rules and presented such difficulties that your office in another city resigned from the audit (before the bankruptcy). Do you think the partner in charge of the audit practice should accept Hitech as a new client?