Assume the role of lead auditor at an external auditing firm, Willis & Adams. The firm is reevaluating its client list and audit
procedures.
You will be responsible for supporting the continued engagement of a current client, EarthWear Clothiers, and planning the audit of this organization’s
financial
statements. You will evaluate and recommend improvements to internal controls, and communicate the audit opinions to the senior management of the
organization.
Specifically, the following critical elements must be addressed:
I. Client Engagement: The external auditing team has been approached by a client to do their yearly audit. You are responsible for evaluating the factors
associated with the organization and the external auditing team to determine why it would be appropriate to move forward with the client request.
A. Evaluate the corporate structure and annual report of the organization, and summarize your findings. [ACC-645-01]
B. Evaluate the following information related to the external auditing firm, and summarize your findings: [ACC-645-01]
1. Independence
2. Knowledge of client industry
3. Staffing capabilities
C. Assume your firm has decided to move forward. Referring to your evaluation of internal and external factors, explain why it would be
appropriate for the external auditing team to accept the client audit request, using examples to support your response. [ACC-645-01]
II. Planning the Audit: Select one of the organization’s business objectives and create an audit plan of the organization’s financial statements. Use the
information from your preliminary review and auditing standards to support your plan.
A. Using your selected business objective, create an audit plan of the organization’s financial statements that addresses the following, and support
each with the appropriate auditing standards:
1. Business risks [ACC-645-02]
2. Management assertions [ACC-645-02]
3. Audit risk [ACC-645-02]
4. Internal controls [ACC-645-02]
5. Effect on audit procedures [ACC-645-02]
B. Determine materiality by conducting a preliminary risk assessment, and explain which factors were used in making this determination. [ACC645-02]
III. Internal Control: Evaluate the following components within an organization for gaps in internal controls, and explain how each can be improved:
A. Control environment [ACC-645-03]
B. Risk assessment [ACC-645-03]
C. Information system [ACC-645-03]
D. Control activities [ACC-645-03]
E. Monitoring activities [ACC-645-03]
IV. Communication: Create a letter to management that identifies any gaps in internal control and provides resolution. In addition, in a separate section
of your submission, include audit opinions of both the internal controls and the financial statements of the organization.
A. Prepare a letter to management that clearly communicates internal control deficiencies or material weaknesses, and provide recommendations
to remediate concerns. [ACC-645-04]
B. Prepare an audit opinion of internal controls, and explain the impact it has on the audit of financial statements. [ACC-645-04]
C. Prepare an audit opinion of financial statements, and explain why the opinion is appropriate based on findings in the audit. [ACC-645-04]