Analysis of the External Audit Firm - Essay Example

A client representation letter is a written statement from a nonindependent source and therefore cannot be regarded as reliable evidence. For example, if there were a hidden information source that did show to an auditor, then it relays on the Winery at Chateau Americana.

As an auditing firm, we will issue an unqualified report, while we would inform, include and mention the subsequent events to the community for the following events:
- A failure of the customer to pay resulted in a $50,750 loss,
- Loss on continence liability of $200,000,
- Renegotiates will cause certain outstanding debts,
- Lost income on one-third of the company’s vineyard.

As an audit committee, communication with the board of directors would make more effective audit reports, and it would lead the audit committee to express an opinion for better future planning.

There are two pending litigation matters. The first is from a former employee who is seeking damages for injuries sustained while employed by the company. The employee was injured as a result of the company’s negligent maintenance of the workplace safety equipment as required by the Occupational Safety. Also, there is an uncertain loss on contingency liability by $500,000, of which McKenna, Harmon & Jacobs did not give an opinion about the matter.

Notes regarding subsequent events affecting the current year’s financial statements could be affected by the report in pending litigation, restructuring of long-term debt, and updating the new accounting firm.

Increasing communication with the audit committee to maintain effective internal control. Make inquiries regarding the recommendations given by the audit firm.

We have some matters attached to our client that we have to be aware of:
- Loss of customers, particularly our client who lost $50,750 because of a failure to pay.
- Occurrence of uninsured catastrophes, such as floods. The client has been damaged by floods, and this cost the winery one-third of the company’s vineyard.
- Legal proceedings were brought about by a lawsuit from a former employee who had been injured in the workplace.
- There are no significant recurring operating losses or working capital deficiencies.

One matter for the management representation letter is to use the audit committee and keep it involved with the internal audit activities; this would help better decision making.

Focus on spending money on outside growers because 75% of their usage of grapes is from external sources. As a suggestion, the winery should look for more third parties with higher quality and lower prices to reduce the 75% figure.