Reference no: EM133149118

You are a CPA in a regional public accounting firm that has 10 offices in three states. Mrs. Alford has approached you with a request for an audit. She is president of Highway Software and Games Inc., a five-year-old company that has recently grown to $600 million in sales and $300 million in total assets. Alford is thinking about going public with a $30 million issue of common stock, of which $12 million would be a secondary issue of shares she holds. You are very happy about this opportunity because you know Alford is the new president of the Symphony Society board and has made quite a civic impression since she came to your medium-size city seven years ago. Highway is one of the growing employers in the city.

A. Discuss the sources of information and the types of inquiries that you and the firm's partners may make in connection with accepting Highway as a new client.

B. Do professional audit standards require any investigation of prospective clients?

C. Suppose Alford also told you that 10 years ago her closely held hamburger franchise business went bankrupt, and on investigation, you learn from its former auditors (your own firm in another city) that Alford was fraudulent in its application of franchise-fee income recognition rules and presented such difficulties that your firm resigned from the audit (before the bankruptcy). Do you think the partner in charge of the audit practice should accept Highway as a new client?