Chapter 7: Case 7-25 – New Client Acceptance
Chapter 7: Case 7-25 – New Client Acceptance,
Comprehensive Case: Mt. Hood Furniture, Inc.
Company Background Information: Your employer, Reddy & Abel, LLP, Certified Public Accountants (who is registered with the PCAOB and audits public companies), has been approached by a prospective client, Mt. Hood Furniture, Inc., about your firm taking on their account. The firm has adopted procedures for the acceptance and retention of clients following the AICPA guidelines for quality control in an accounting practice. The firm requires that a partner interview all prospective clients to determine what services the client needs and the ability of the firm to provide those services. As the prospective senior on the engagement, you accompanied the partner on the interview. The following is a summary of your notes from the interviews with senior management. Notes from Client Interview: Mt. Hood Furniture, Inc. is an Oregon corporation incorporated in 1961. The company is a regional manufacturer of office furniture and cabinetry. The product line includes desks, chairs, filing cabinets, bookcases, credenzas, and European-style cabinets. Approximately 80 percent of fiscal year 20X3 net sales were in office furniture and 20 percent in cabinetry. The cabinetry unit underwent major retooling commencing in 20X2, which approximated 85 percent of the capital expenditures that year. The retooling was financed with significant long-term debt. The improvements enabled the company to manufacture ready-to-assemble furniture products, and develop a modular ready-to-install cabinet line, which has resulted in an increase in sales. The company has developed new, award-winning designs in office furniture, designs that stress the efficient and ergonomic use of technology. Ample opportunity exists to expand sales of the existing product lines. Management estimates that the current physical plant can support up to $50 million in sales without significant additions of manufacturing and
Comprehensive Case: Mt. Hood Furniture, Inc.
Company Background Information: Your employer, Reddy & Abel, LLP, Certified Public Accountants (who is registered with the PCAOB and audits public companies), has been approached by a prospective client, Mt. Hood Furniture, Inc., about your firm taking on their account. The firm has adopted procedures for the acceptance and retention of clients following the AICPA guidelines for quality control in an accounting practice. The firm requires that a partner interview all prospective clients to determine what services the client needs and the ability of the firm to provide those services. As the prospective senior on the engagement, you accompanied the partner on the interview. The following is a summary of your notes from the interviews with senior management. Notes from Client Interview: Mt. Hood Furniture, Inc. is an Oregon corporation incorporated in 1961. The company is a regional manufacturer of office furniture and cabinetry. The product line includes desks, chairs, filing cabinets, bookcases, credenzas, and European-style cabinets. Approximately 80 percent of fiscal year 20X3 net sales were in office furniture and 20 percent in cabinetry. The cabinetry unit underwent major retooling commencing in 20X2, which approximated 85 percent of the capital expenditures that year. The retooling was financed with significant long-term debt. The improvements enabled the company to manufacture ready-to-assemble furniture products, and develop a modular ready-to-install cabinet line, which has resulted in an increase in sales. The company has developed new, award-winning designs in office furniture, designs that stress the efficient and ergonomic use of technology. Ample opportunity exists to expand sales of the existing product lines. Management estimates that the current physical plant can support up to $50 million in sales without significant additions of manufacturing and