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Facts: You are now a supervisor at a mid-size CPA firm. You are performing an audit of a private company, Paddy's Pub, which specializes in brewing craft beer and sells a rum ham. One of the staff members on the audit comes to you and informs you during inventory testing; management stated they would not be able to allow us to physically count the inventory. Inventory being vats of beer for the brewery portion of the businesses. Additionally, we would need an employee of the client to identify the difference between the various inventory items, types of beer. A normal CPA cannot identify the difference between the different beers in each vat because the beer is still in the fermentation period. As such you must research how to follow GAAP and if you will still be able to audit the client or give them an unqualified opinion.
Additionally, you have a brother who works at Nelson & Murdock, APC; a sister at Pearson, Specter, Litt, LLP, and an inlaw/outlaw who works at Florrick, Lockhart & Agos. All of these law firms provide legal services to the Company. Also, you have an uncle at Schnaus Law Group who provides tax consulting services for the client.
Discuss the standard when auditing inventory, whether you will be able to complete the audit & what facts need to be asked or examined. Additionally, review whether there is an issue with independence. Bonus points if you can name where I came up with all the law firms for this assignment.
Your paper should be double spaced; 12 font; Time New Roman font and 3 pages double spaced. No more than 3 pages, so make the most out of the space you have. Remember this is a memorandum to a Partner level CPA, so the tone should fit accordingly. Also the bonus answer can be over the 3-page limit.
Instructions: go to http://www.aicpa.org/Research/Standards/Pages/default.aspx
Review the AICPA sections on Audit and Attest Standards and the Code of Professional Conduct for the answers. REVIEW THE INVENTORY SECTION. Remember the Code of Professional Conduct section relates to the independence issue.
FORMATTING
TO: Jerry Schnaus
FROM: Use your name
RE: XYZ
DATE: December 16, 2020
Good morning Mr./Mrs.:
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