1. Â The audit committee of the board of directors of Bolly Corporation asked Paul and Paul, CPAs, to audit Bolly’s financial statements for the year ended December 31, 2018. Paul and Paul explained the need to make an inquiry of the predecessor auditor and requested permission to do so. Bolly’s management agreed and authorized the predecessor auditor to respond fully to Paul and Paul’s inquiries.
a. What information should Paul and Paul obtain during its inquiry of the predecessor auditor prior to accepting the engagement?
b. What additional audit procedures should Paul and Paul perform in evaluating Bolly as a potential client?
2. Â Parker is the in-charge auditor for the upcoming annual audit of ABC Company, a continuing audit client. Parker will supervise two assistants on the engagement and will visit the entity before the fieldwork begins.
Parker has completed the engagement letter and established an understanding with the Chief Internal Auditor on the assistance to be provided by the internal audit function.
Discuss the preliminary engagement and planning activities that Parker needs to complete.
3. Â A CPA has been asked to audit the financial statements of a publicly held company for the first time. All preliminary verbal discussions and inquiries among the CPA, the company, the predecessor auditor, and all other necessary parties have been completed. The CPA is now preparing an engagement letter.
a. Discuss the items that should be included in the typical engagement letter in these circumstances.
b. Describe the benefits derived from preparing an engagement letter.
4. Â Section 301 of the Sarbanes-Oxley Act requires that public companies have an audit committee. Independent auditors are increasingly involved with audit committees.
a. Describe what an audit committee is.
b. Identify the reasons why audit committees have been formed and are currently in operation.
c. Describe the functions of an audit committee.