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Auditing HW #1 – Aug 26
1-36:
a. Explain why management might want an independent audit of its financial statements.
McIver’s management may want an independent audit of its financial statements for several reasons. First of all, due to the desired increasing growth, there is now a greater risk that salesmen and/or managers could report inflated numbers that align with management’s goals. An independent audit would be beneficial in discovering any such activity. Also, if McIver’s acquires the other swimwear distributorship there is an added risk. McIver’s probably does not have an in-depth knowledge of the other company, so an independent audit could also bring to light any malfeasance on the acquired company’s end. Finally, McIver’s could desire to go public in the near future considering its growth. Audits are necessary for public companies, and so it would make sense that management would want one.

b. What are the factors that McIver’s might consider in deciding whether to seek an audit from a large national audit firm, a regional audit firm, or a local firm?
McIver’s decision of whether to hire a national, regional, or local audit firm should be determined by various factors including quality, cost, familiarity with the industry, and familiarity with the region. Generally speaking, if McIver’s number one aspect of the audit was quality, they would choose a national firm. The downside of that would be the cost, which is generally higher. A local firm on the other hand, would likely be less expensive and also be familiar with the region McIver’s is located in. The quality of the local firm may not be as good as that of a larger, national firm. The regional firm would be a middle ground between the two, more familiar with the region, a mid-cost option, and audit quality that is sufficient. c. What types of users might be interested in McIver’s...

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