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3-2 Final Project Milestone One: Client Engagement
SNHU
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Earthwear Clothiers has approached Wills & Adams for auditing purposes. As
the lead auditor of Wills & Adams it is necessary to properly assess the internal and
external factors relating to the Earthwear Clothiers organization. It can help in determining
whether the external auditing team should move forward with the client request or not.
Some of the key elements that have been evaluated in the report include the corporate
structure of Earthwear Clothiers, the independence, knowledge of the client industry, and
staffing capabilities of the external auditing firm. Finally, a justification has been presented
to highlight the fact that it is appropriate for Wills & Adams to accept EarthWear
Clothiers’ auditing request.
Corporate Structure
Earthwear Clothiers was founded in 1973 by James Williams and Calvin Rogers to
create
high-quality clothes for outdoor sports like skiing, hiking, etc. Its product line encompasses
casual clothing, shoes, accessories and soft luggage. The corporate structure of the firm
encompasses a number of executive officers. Williams serves as the chairman of the board,
and
Rogers is the president and CEO. Desantiago is the Chief Operating Officer and Executive
Vice
President. McDaniel is the Senior President of sales. Watts serves as the Senior Vice
President
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and Chief Financial Officer. Tornesello is the Senior Vice President of Operations. Thus,
the key
department that makes up its corporate structure are sales, finance, and operations. The
management has developed and maintains a comprehensive system of internal control within
the
firm. As per the annual report, the performance of 2015 is considerably lower as compared
to the
previous year.
External Auditing firm’s independence
Wills & Adams is the external auditor in the specific scenario. The company
mandates its auditors to perform detailed and integrated background research of potential
clients and customers. According to the Public Company Accounting Oversight Board
PCAOB, to be
independent, an auditor must be intellectually honest, and he must be free from any kind of
obligation or interest of the client (As 1005: Independence. Default, 2021). Wills &
Adams
serves as an independent auditing firm that has a systematic process is in place to
independently
and fairly perform the auditing activities. The independence can help in conducting detailed
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investigations and make useful revelations about the possibility of malpractices that may be
involved within the client business. It can help in uncovering previously existing issues in
the
client business.
Knowledge of client industry
For an auditing company to carry out authentic auditing activities, it is necessary to
possess in-depth knowledge and insight into the industry in which the client operates.
According
to the PCAOB, auditors must consider external factors such as the industry details and
the environment of work (Auditing standard no. 12. Default, 2021). The insight is vital to
making suitable suggestions to the client to improve its financial activities. The Wills
& Adams
company has in-depth insight into the industry since it conducts thorough research before
commencing auditing activities.
Staffing Capabilities
Staffing capability is another vital criterion that must be taken into consideration
while
evaluating an external auditor. It can have a direct and significant influence on the quality
of the
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auditing activities that have been performed on the client business and financial reporting
activities. In the specific case involving the Wills & Adams auditor, the staffing
capabilities canbe considered to be one of the greatest strengths. Based on the expertise and
skills of the auditing staff, the company can offer a host of services to its clients, including
tax planning,
assurance services, business planning, valuation services as well as litigation support
services.
According to PCAOB, an independent auditor must have the necessary professional
qualifications to perform auditing activities. Additionally, it must have adequate experience
and
expertise in the domain (As 1005: Independence. Default, 2021). The staff of the external
auditing company have high experience. Wills, a CPA, formed the company. Adams is a
CPA
and has experience in public and private accounting for over two decades. Mitchell is also a
CPA
and joined the firm after gaining high experience in diverse public accounting companies.
Thus,
the staffing capabilities of the external auditing team is strong.
Internal and external factors
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It would be appropriate for the external auditing team to accept the client audit
request.
One of the main reasons for the same is the complete independence and intellectually
honest of
the external auditing company. The strong staffing capabilities can help to identify the
quality of
the financial reporting system of Earthwear Clothiers. The knowledge of the industry in
which
the client operates can also help in uncovering useful auditing information about the
business.
References
Auditing standard no. 12. Default. (2021). Retrieved September 10, 2022, from
https://pcaobus.org/oversight/standards/archived-standards/pre-reorganized-auditing-
standards-interpretations/details/Auditing_Standard_12
As 1005: Independence. Default. (2021). Retrieved September 10, 2022, from
https://pcaobus.org/oversight/standards/auditing-
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standards/details/AS1005#: ~:text=To%20be%20independent%2C%20the%20auditor,
its%20management%2C%20or%20its%20owners.
