Provide a description of items you recommend the audit firm research concerning Marco relationships with third parties including:
▪ financial institutions, and
▪ legal counsel that would be relevant to assess audit risk.
Include possible sources of information for each third party and where you would expect to find the information. Further, include a brief discussion of why you included each item by discussing how it would affect audit and fraud risk. You must cite at least three sources of information. A description of items you recommend the audit firm review internally to determine the need for outside experts on the audit and whether the audit firm is sufficiently independent of Marco. Provide a general discussion of the sources you would use here.
Write the engagement letter
The auditors prepare the engagement letter and sign it. The auditors present the signed engagement letter to the auditee for her/his signature. Once signed, the engagement letter represents a contract between the two parties. More details of the engagement letter are on Page 100 of your Auditing textbook. The engagement letter is important because it is a legally binding contract between the auditor and the auditee. Use the Levin, Lombard, & Wolod, LLC letterhead and address your engagement letter to your potential client. Add need lines at the bottom of the engagement letter for partner and client signatures and dates.
Prepare an engagement letter for Marco on the Levin, Lombard, & Wolod, LLC letterhead you created for the Client Acceptance Report. Fill in as much of the normal sections of the letter as possible given the information you have gathered. The engagement will only cover the financial statements; not any additional services. You may search the Internet for sources of information that would be included in a client engagement letter. Include some of the information that you have included in your client acceptance report.
B) Identify risks using analytical procedures based on the financial data.
1. Perform Preliminary Analytical Procedures and Document
Review Marco Appliance’s financial statements, ratios, and industrial data presented at the end of this document. Identify four accounts that you believe need additional audit scrutiny and explain why. I have included one example – you need to add four more to the list. Copies of Marco’s audited 2014 and unaudited 2015 financial statements are included after these requirements. Some common ratios for Marco and their industry are also included. Content/Course Resources includes the Accounting and Finance Ratios and Formulas document.
Describe the control weakness (just a short statement of weakness) Describe how the weakness could create a material error in the financial statements including which general ledger accounts and audit objective might be affected (be clear on which category is involved, balance, transaction, or presentation and disclosure) and provide an explanation of how the weakness might lead to a violation of the audit objective. Make a recommendation on how the company’s controls could be improved to mitigate this weakness and discuss some potential weaknesses in the control you suggest (e.g., how it might be overridden).
Limit your answers to the four most serious weaknesses you find in the:
a) sales and collection processes, and the
b) purchases and payments processes.