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Ocean Manufacturing

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Ocean Manufacturing Inc. - The New Client Acceptance Decision
What non-financial matters should be considered before accepting Oceans as a client and why?
- Most of Barnes and Fischer’s audit clients are in the healthcare services industry and the company has never had a client in the small appliances industry. The engagement presents an excellent opportunity for the company to enter a new market and expand its reputation, especially if Ocean goes public in the future. However, auditors need to examine whether they have the required professional competence to provide the service since the company has no previous experiences in the industry.
- Ocean is planning to go public and expand aggressively national markets. There are many hints throughout the case that management is willing to aggressively manipulate its financial statements in order to achieve better results. With the plans of an IPO, the risk of manipulation is even greater. According to SEC, auditors are liable for third party losses if there is false or misleading information in the audited statements in an IPO. Thus, a great deal of attention should be paid on this issue in order to avoid information risk and legal risk.
- The auditee’s relationship with its previous auditor seems suspicious. Even though management of Ocean claimed that the dissolution of the relationship was due to lack of understanding of Ocean’s business environment, the company should still be concerned. Ocean was hesitant to permit the company to speak with its previous auditor, and as a result, auditors should be alarmed and carefully examine the reasons behind the dissolution before being engaged.
- According to the previous auditor, a major reason that broke down the relationship between Ocean and the previous audit firm was the disagreement over audit fees. In order to achieve investigative independence, enough fees need…...

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