Case Assignment #1

Marguerite Hendrickson

Zoe Moran

Austin Charleston

Tyler Houlton
 LILTS BERGER & ASSOCIATES 4-1
Certified Public Accountants CW
11/23/2018
Ocean City, Florida 33140 ZM, MH, AC, TH
2/19/2019

October 30, 2018

Mr. Donald Phillips, President

Oceanview Marine Company
36 Clearwater Lake Road
Ocean City, Florida 33140

Dear Mr. Phillips:

You have requested that we audit the financial statements of Oceanview Marine
Company, which comprise the balance sheet for December 31, 2018, and the
related statements of income, changes in stockholders’ equity, and cash flows for the
year then ended, and the related notes to the financial statements. We are pleased to
confirm our acceptance and understanding of this audit engagement by means of this
letter. Our audit will be conducted with the objective of our expressing an opinion on
the financial statements.

We will perform our audit in accordance with auditing standards generally accepted
in the United States of America (GAAS). An audit is designed to provide
reasonable assurance that the financial statements are free of material misstatement,
whether due to fraud or error. An audit involves performing procedures to obtain
audit evidence about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor’s judgment, including the assessment of
the risk of material misstatement of the financial statements. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness
of significant accounting estimates made by management, as well as evaluating the
overall presentation of the financial statements.

Because of the inherent limitations of and audit, together with the inherent
limitations of internal control, an unavoidable risk that some material
misstatements may not be detected exists, even though the audit is properly planned
and performed in accordance with GAAS.
 4-2
CW
11/23/2018
ZM, MH, AC, TH
2/19/2019

In making our risk assessments, we consider internal control relevant to the entity’s
preparation and fair presentation of the financial statements in order to design audit
procedures that are appropriate in the circumstances but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control.
However, we will communicate to you in writing concerning and significant
deficiencies or material weaknesses in internal control relevant to the audit of the
financial statements that we have identified during the audit.

Our audit will be conducted on the basis that the management of Oceanview
Marine Company acknowledges and understands that it has responsibility for
a. the preparation and fair presentation of the financial statements in accordance with
accounting principles generally accepted in the United States of America (GAAP);
b. the design, implementation and maintenance of internal control relevant to the fair
presentation of the financial statements that are free from material misstatement, whether
due to fraud or error.
c. to provide us with access to all information of which management is aware that is
relevant to the preparation of the financial statements such as records, documentation,
and other matters; additional information that we may request from management for the
purpose of the audit; and unrestricted access to persons within the entity from whom we
determine it necessary to obtain audit evidence.

As part of our audit process, we will request from management written confirmation
concerning representations made to use in connection with the audit.

We will issue a written report upon completion of our audit of Oceanview Marine
Company’s financial statements. Our report will be addressed to the board of
directors of Oceanview Marine Company. We cannot provide assurance than an
unmodified opinion will be expressed. Circumstances may arise in which it is
necessary for us to modify our opinion, add an emphasis-of-matter or other-matter
paragraph, or withdraw from the engagement.
 4-3
CW
11/23/2018
ZM, MH, AC, TH
2/19/2019

The timing of our services is scheduled for performance and completion as follows:

Begin interim fieldwork December 1, 2018

Completion of fieldwork March 15, 2019
Delivery of management letter March 22, 2019
Delivery of audit report March 29, 2019
Delivery of tax returns March 29, 2019

Our fees will be based on our standard hourly rates. Invoices will be submitted periodically
as the work progresses and are payable upon presentation. Should we find any conditions
that could significantly affect our initial estimated total fees of $32,000, we will notify
you immediately.

In addition, we will provide the tax return review and tax planning services that have
been requested.

Please sign and return the attached copy of this letter to indicate your
acknowledgement of, and agreement with, the arrangements for our audit of the
financial statements including our respective responsibilities.

Yours very truly,

Charles Ward
Charles Ward, CPA
Partner

Per: Donald
Phillips
Donald Phillips, President
 Oceanview Marine Company
November 10,
2018

Discussion Questions 
1. 
Factors Favoring Acceptance  Concerns about Acceptance 

1. Responses to inquiries of predecessors were 1. Oceanview has a unique credit policy

complimentary about Oceanview. Predecessor where customers aren’t charged interest
auditor spoke highly of Oceanview’s employees’ for 3 months and checks for up to
integrity, competence, and dedication to running a $2,500 are accepted without a credit
successful business.  check. 

2. Independence is not impaired. There are no 2. Oceanview has a potential liability

financial, employment or family relationships that case for a boat a customer rented that
would prohibit the audit.  sank, however, no estimation of the
liability is available.  

3. Oceanview has no going concern issue since they 3. In 2006, Oceanview was assessed
are profitable and solvent.  $28,000 for underpayment of taxes and
penalties by the IRS. 

2. We agree with the decision to accept Oceanview as a client. The biggest factor that played a role in
this was how the predecessor auditor spoke highly of the employee’s integrity, competence and
dedication to running a successful business. Because of this, the employees seemingly have the best
intentions for their business. Along with that, Cynthia and the staff stated they would be compliant in
preparing data and providing documents and records.

3. A CPA firm might charge a new client an audit fee lower than the estimated first year costs of
performing the audit to attract the client to their firm. In this case, Oceanview was deciding among
multiple audit firms in the area, so by offering a lower audit fee, LILTS BERGER & ASSOCIATES
can attract Oceanview to their firm. When there is competition among audit firms, offering a lower
first year fee can help guarantee future cash flows by securing the client and then raising the fee in
audits of future years. 

4a. The purpose of the communication is to help the successor auditor obtain any information that
would affect the acceptance of the engagement, such as integrity issues, reasons for change of auditors,
and other disagreements. Communication with the predecessor auditor also allows the successor to get
access to previous audit workpapers which would provide better understanding of the client’s financial
reporting. 
4b. The client’s permission is required because the Code of Professional Conduct does not allow an
auditor to disclose confidential client information obtained during the audit engagement without the
consent of the client first. 

4c. Reviewing these workpapers allows the auditor to obtain information on beginning balances and
consistent application of GAAP in order to issue an unqualified report. Reviewing these workpapers
also allows the successor auditor to have a better understanding of where material misstatements are
more likely to occur.