01 Jul Introduction to Auditing and its Practice
The audit plan begins with accepting the client and ends with the issues of the report and includes any relevant management memos. The following are steps that are included in the audit plan:
Accepting client and performing initial audit planning
Understanding the client’s business and industry
Assessing the client’s risk
Performing preliminary analytical procedures
Setting materiality and assessing acceptable audit risk and inherent risk
Understanding internal control and assessing control risk
Gathering information to assess fraud risks
Developing an overall audit plan and audit program
The audit plan (all assignments) will be based on the following scenario.
You are a senior auditor assigned to the team performing an audit for Restorative Pharmaceutical Corporation (RPC), a 10-year-old publicly held corporation listed on the New York Stock Exchange (NYSE), which specializes in anti-aging products such as vitamins, protein-infused beverages, and dietary supplements. RPC’s corporate office is located in San Diego, CA. Its annual sales are approximately $100 million. Restorative’s products have been endorsed by noted doctors and talk show hosts on daytime network television. Restorative also develops and markets products through television commercials, drawing clients to their Web site to accomplish direct sales as well as via major drugstore chains. None of Restorative’s products are FDA-approved, as these are part of a class of products which do not require approval to be marketed in the United States. However, the products are subject to scrutiny when claims regarding various outcomes are assured for clients; general product safety is critical. Products are manufactured primarily in Tijuana, Mexico and are imported for distribution from the main warehouse in National City, CA which is between the corporate office and the manufacturing plant. Your team lead and senior audit manager and firm partner, Scott Payne, CPA, has recruited you to write the engagement letter for the year-end audit of Restorative Pharmaceutical. In addition, he believes it is time for you to begin writing an audit plan under his supervision.
Week 1 Deliverable
The engagement letter is one of the first official deliverables in the audit-planning process. It clarifies the responsibilities and expectations of each party (i.e., the client and the CPA firm) and this is an important element of managing engagement risk, especially the risk related to litigation. The engagement letter includes the acknowledgment of expectations for both the client and the CPA firm conducting the engagement.
Restorative Pharmaceutical Corporation (RPC), a 10-year-old publicly held corporation listed on the NYSE which specializes in anti-aging products such as vitamins, protein infused beverages, and dietary supplements. RPC’s corporate office is located in San Diego, CA.
Develop an engagement letter on behalf of the audit partner, Scott Payne, CPA, for the annual year-end audit of RPC. Assume that the project fee for the audit will be $50,000. Be sure to mention any relevant regulation requirements in your letter, and address the letter to appropriate RPC personnel.
Deliverable Length: 1,200 – 1,500 words. Please include references. APA format please.
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