Individual Assignment 1:
The Peninsula Limited: Analysis of a Potential Audit Client
Jimmy Chung is the president of the Peninsula Company, a retailer and distributor of consumer electronics based in Hong Kong. Although Lam & Company, the audit firm had previously audited Peninsula, Jimmy has recently become aware of the CPA firm of Zhou & Company from his friend. His interest in the firm was heightened when he discovered that Zhou & Company audited the primary bank with which he did business. During March of 2015, Jimmy contacted his banker who arranged for Jimmy to have lunch with one of the CPA firm’s partners. At that time, a wide-ranging conversation was held concerning Peninsula as well as Zhou & Company. Jimmy discussed the history of the consumer electronics company along with his hopes for the future. The partner, in turn, described many of the attributes possessed by his audit firm. Subsequently, Jimmy requested a formal appointment with Peter Zhou, the managing partner of Zhou & Company, in hopes of arriving at a final conclusion concerning Peninsula’s 2015 audit engagement.
A June 1 meeting was held at the audit firm’s office and was attended by Jimmy, Peter, and Andrews, an audit manager with the CPA audit who would be assisting in the investigation of this prospective audit client. Both auditors were quite interested in learning as much as possible about the consumer electronics business. Although there are a number of similar operations in Hong Kong, Zhou & Company has never had a client in this field. Thus, the Peninsula engagement would offer a good opportunity for Zhou & Company to break into a new market.
During a rather lengthy conversation with Jimmy, Peter and Andrews were able to obtain a significant quantity of data about the Peninsula Company and the possible audit engagement. Included in this information were the following facts:
Jimmy originally began Peninsula in 1997 as a single store that sold