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Summary Final Audit Project.docx ACC 645 Final Audit Project Southern New Hampshire University ACC 645: Advanced Auditing Client Engagement Corporate Structure The client, EarthWear Clothiers (EWC), makes high-quality clothing for outdoor sports, as well as $7.49
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Summary Final Audit Project.docx ACC 645 Final Audit Project Southern New Hampshire University ACC 645: Advanced Auditing Client Engagement Corporate Structure The client, EarthWear Clothiers (EWC), makes high-quality clothing for outdoor sports, as well as
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Final Audit P ACC 645 Final Audit Project Southern New Hampshire University ACC 645: Advanced Auditing Client Engagement Corporate Structure The client, EarthWear Clothiers (EWC), makes high-quality clothing for outdoor sports, as well as casual clothing, accessories, shoes, and soft luggage. ...
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ACC 645
Final Audit Project Southern New
Hampshire University ACC 645:
Advanced Auditing
Client Engagement
Corporate Structure
The client, EarthWear Clothiers (EWC), makes high-quality clothing for outdoor sports,
as well as casual clothing, accessories, shoes, and soft luggage. The products are sold on
EarthWear’s website, in retail outlets, and through catalogs. EWC sells its products in the United
States, Europe, and Japan. EWC’s competitors are retail stores, specialty stores, department
stores, and catalog companies.
EarthWear Clothiers has a broad growth strategy. The company plans to expand its
customer base and improve product offerings to increase sales. The company plans to increase
sales by offering more products on its website and by sending special issues of catalogs to
existing customers.
The annual report shows the majority of EWC’s revenue is made from catalog sales, at
74%. Website sales equate to 21% of revenue and retail stores bring in 5% of revenue. The
annual report shows that EWC is a seasonal business, with most of its profits being realized
during the 4th quarter. In 2015, 37% of total revenue came in the 4th quarter and 12% of net sales
were made from liquidation sales. Liquidation sales were made through catalogs. In 2015, total
revenue increased 10.8% and net income decreased 27.8%. At the end of 2015, EWC had no
long-term debt outstanding. The annual report shows the financial statements conformed with
Generally Accepted Accounting Principles and that EWC had effective internal controls.
, Auditing Firm: Independence
Public Company Accounting Oversight Board (PCAOB) Auditing Standard (AS) 1005:
Independence states that an auditor or auditors must be independent. The auditor must remain
objective and not hold any biases toward the client. The auditor “must be free from any
obligation to or interest in the client, its management, or its owners” (PCAOB, AS 1005.03).
Willis and Adams is an external audit firm that has been auditing EWC since 1975. They
have three CPA’s who are all knowledgeable and experienced in providing audit services.
Michael Willis formed Willis and Co in 1970. Scott Adams has been an accountant for over 20
years. Karen Mitchell gained experience working in various public accounting firms. None of
the CPAs hold any obligation to EWC’s management or owners.
Knowledge of Client Industry
International Standard on Auditing (ISA) 315 requires the auditor to obtain an
understanding of the client and the client’s environment. The auditor needs to understand the
client’s operations, investments the client made or plans to make, the client’s objectives and
strategies, and risks that may result in material misstatements.
Willis and Adams can obtain an understanding of EWC’s industry by conducting
background searches and by interviewing industry peers. The auditors can gain additional
knowledge of EWC through communications with the client’s lawyers, bankers, and other
employees (Messier, Glover, and Prawitt, 2017). Willis and Adams have been auditing
EarthWear Clothiers since 1975. They can review prior years strategies and compare that
information to any new strategies EWC has planned to implement. Evaluating prior years
accounting and auditing information can show the auditors if any conflicts may arise in response
to new accounting and business processes. They can then determine if those issues are
significant and warrant disassociating with the client.
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