There are many procedures auditors must perform before accepting a client. The first procedure is to evaluate Ocean Manufacturing's management. The reason auditors need to do this is because management without integrity will make it harder for auditors to do their jobs and audit risk will increase. Auditors will not be able to do enough work to offset increased audit risk when client management lacks integrity. Since no major issues beyond the vice president's old gambling habits have been discovered, it's safe to assume that management has sufficient integrity. The second procedure is to speak to the previous auditor and ask for the client's permission to speak with him about confidential information. In the conversation with previous auditors, current auditors will need to talk about the client's integrity, any issues they faced with the client, and why their relationship with the client dissolved. It turns out that one of the main reasons why the relationship between the previous auditor and Ocean dissolved is the complexity and problems with the new IT system. Since the current auditors have a confident IT team, this is a reason to accept the client. Another reason why their relationship dissolved was because Ocean wanted to aggressively adjust the year-end transactions and this could be a point against accepting them because it could mean that the client is difficult to work with. The third procedure is to evaluate the independence of the auditors with respect to Ocean's participation. Since the only independence issue discovered involves a partner who indirectly holds $2,800 and even though he has no control over Ocean's affairs, it is safe to assume that there is no independence issue. Another procedure that should be performed is to understand the client's business and the industry in which they operate. This can be done by on-site visits to its offices and facilities, reviewing industry publications and what factors impact the industry and market. customer activity. The final procedure needed to accept a client is to determine whether the auditors have or can acquire the technical skills and industry knowledge to perform the audit to standards. These five procedures are all required by audit standards. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an Original Essay There are many non-financial issues that should be considered before accepting Ocean as a client. The first examines recent management turnover. If turnover occurred due to conflicts within the company, this could mean other problems in the client's company that could increase audit risk. Additionally, due to recent management turnover, the new controller may not know enough about the company, its operations, and may not have enough experience to help with the audit, which may mean the audit will take longer to complete. completed. Another important issue to consider is the auditor turnover rate. When a client changes many reviewers in a short period of time, this is a big red flag to not accept the client. Barnes and Fischer, LLP, needs to find out why the auditor turnover rate is high. The third issue to be examined is the new IT system. The IT system poses many problems, such as not getting the information they need from the system and if there are no proper controls over the new system. If controls are missing in the computer system, the amount of validation testingrequested will increase. The fourth issue is the fact that Ocean is planning an IPO. If the IPO happens, Ocean will be a valuable customer but as there are more users of the financial statement, the legal risk could increase. The reason for the increased legal risk is that now that there are more users of the financial statement, if a user loses money from Ocean, they could go after the auditors. The fifth issue is the relationship with the previous reviewers. Since Ocean was reluctant to arrange a meeting between the new reviewers and the previous reviewers, it could raise concerns if Ocean was trying to hide something. Since the relationship with the previous auditor and with Ocean presented many difficulties, the new auditors will have to take this into account. Additionally, there have been audit fee issues with the latest auditors, meaning Barnes and Fischer, LLP, should be cautious about this. There are some positive non-financial issues, however, such as the fact that with Ocean as a client, Barnes and Fischer, LLP could expand into another industry. As mentioned above, if Ocean were to IPO, it could become a larger company and therefore become an even more valuable and attractive customer. There are also some financial issues that should be taken into consideration when deciding on the acceptance of a new client. Refer to the appendix for more details. The reason why financial matters are important is because they help you better understand the potential client and the auditors can better understand how the client stands in relation to the rest of the industry. The first financial issue you discover is that the ROE is much lower than the industry. This could suggest that management may want to aggressively adjust year-end transactions to better suit the industry and satisfy its shareholders. Another issue is that accounts receivable is much higher than the industry. This could potentially mean that they are overestimating their claims. Another major financial concern is the fact that inventories have increased significantly over the past three years. This means the auditor will have to find out whether this is due to better inventory systems or whether there are errors in the financial data. The last major financial concern is that the profit margin is very low compared to the industry. This could suggest that Ocean may want to aggressively adjust its year-end transactions to improve its profit margin. Since one of the partners has invested indirectly in Ocean, the materiality should be examined. If the investment were direct, this issue would not be acceptable, but since the investment is indirect, its relevance should be examined. In the case it is said that the partner's stake in the venture fund is $56,000 and the venture fund holds 0.5% of Ocean in its fund. This means he indirectly owns $2800, which is not material. Therefore, the problem is acceptable. Please note: this is just an example. Get a custom paper from our expert writers now. Get a Custom Essay The first major factor and risk area that will affect how the audit will be conducted if Ocean is accepted as a client is the fact that many audit trails have not been managed properly. Depending on the type of missing audit trails, the auditor will need to gather evidence by going back to the missing periods and using the data from there and after splitting the missing audit trails. Additionally, the auditor will need to perform analytical procedures to verify reasonableness since audit trails were missing. Another important factor is the implementation of the new IT system. This is because, since the IT system.