Performance Principle: Planning. Your public accounting practice is located in a city of15,000 people. The majority of your work, conducted by you and two assistants, consistsof compiling clients’ monthly statements and preparing income tax returns for individualsfrom cash data and partnership returns from books and records. You have a small number ofaudit clients; given the current size of your practice, you generally consider it a challenge toaccept new audit clients.One of your corporate clients is a retail hardware store. Your work for this client has beenlimited to preparing the corporate income tax return from a trial balance submitted by thebookkeeper.On December 26, you receive from the president of the corporation a letter containingthe following request:We have made arrangements with First National Bank to borrow $500,000 to finance thepurchase of a complete line of appliances. The bank has asked us to furnish our auditors’ certifiedstatement as of December 31, which is the closing date of our accounting year. The trial balanceof the general ledger should be ready by January 10, which should allow ample time to prepareyour report for submission to the bank by January 20. In view of the importance of this certifiedreport to our financing program, we trust you will arrange to comply with the preceding schedule.Required:From a theoretical viewpoint, discuss the difficulties that are caused by such a short noticeaudit request.
Performance Principle: Planning. Your public accounting practice is located in a city of
15,000 people. The majority of your work, conducted by you and two assistants, consists
of compiling clients’ monthly statements and preparing income tax returns for individuals
from cash data and
audit clients; given the current size of your practice, you generally consider it a challenge to
accept new audit clients.
One of your corporate clients is a retail hardware store. Your work for this client has been
limited to preparing the corporate income tax return from a
bookkeeper.
On December 26, you receive from the president of the corporation a letter containing
the following request:
We have made arrangements with First National Bank to borrow $500,000 to finance the
purchase of a complete line of appliances. The bank has asked us to furnish our auditors’ certified
statement as of December 31, which is the closing date of our accounting year. The trial balance
of the general ledger should be ready by January 10, which should allow ample time to prepare
your report for submission to the bank by January 20. In view of the importance of this certified
report to our financing program, we trust you will arrange to comply with the preceding schedule.
Required:
From a theoretical viewpoint, discuss the difficulties that are caused by such a short notice
audit request.
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