Exercise 1

This are specific procedures that Morgan should follow in deciding whether to accept this prospective
audit client:

1. The CPA firm should evaluate the prospective client’s standing in the business community, financial
stability, and relations with its previous CPA firm.
2. Make inquiries and communicate with the previous auditor with the authorization of prospective
client to respond and allowing Morgan to review predecessor’s audit working papers.
3. Morgan should make inquiries concerning such matters as the integrity of management, any
disagreements with management as to accounting principles, the reason for the change in auditors,
and any other matters affecting the decision of whether to accept the engagement.
4. Make inquiries of other appropriate third parties regarding the history of the prospective client and
the reputations of its management and directors. These third parties may include the client's bankers,
legal counsel, and underwriters.
5. Obtain a knowledge of the client's business activities and business environment. Sources of this
information include inquiries of management and others within the organization, inspection of
internal documents and records, the client's website, AICPA accounting and audit guides, registration
statements and Form 10-Ks filed with the SEC, interim financial statements, income tax returns, and
credit reports.
6. Consider any special problems or unique risks likely to be associated with the engagement.
7. Hold preliminary meetings with management and the audit committee to discuss such matters as
the scope of the services to be performed, timing of the performance and completion of the audit,
basis for the fee, and work that may be done by the client's staff in preparation for the audit.
Upon acceptance of the engagement, Morgan should issue an engagement letter summarizing the
arrangements reached with the client.

Exercise 2

A. In planning to perform an audit to the client’s company and before the engagement the successor
auditors requires to make contact with the previous auditor with the client permission because
auditor are bound not to disclose confidential information. Dizon needs to gather information about
the prospective clients to get an understanding of the operations and their business environment.
Dizon must also get information about the significant risk and their competitors. It will help the
successor auditor to evaluate whether to accept the engagement. Dizon should gain knowledge of
how the client applies their accounting policies. This knowledge will demonstrate and aid Dizon
comprehensive of the client operation. Lastly, Dizon must also consider any regulatory or external
influences on the company as well as any political or economic state.

B. Dizon start obtaining the information needed by requesting the previous audit reports, tax returns ,
annual stockholders report. In some cases, the auditor may hire a professional investigator to obtain
information about the reputation and background of the key members of management. More
extensive investigation is appropriate when there has been no previous auditor, when a predecessor
auditor will not provide the desired information, or if any indication of problems arises from the
communication.

C. One of the principles underlying auditing standards notes that the auditor obtains an
understanding of the entity and its environment to provide a basis for identifying and assessing the
risks of material misstatements in the financial statements. Auditors need an understanding of the
client's business and industry because the nature of the business and industry affect business risk and
the risk of material misstatements in the financial statements. Auditors use the knowledge of these
risks to determine the appropriate extent of further audit procedures. Dizon should gain information
about her client to ensure the accurate audit report and reasonable assurance base on her findings.
Exercise 3

Group 10 Co. CPAs

673 Quirino Highway, San Bartolome, Novaliches, Quezon City

April 12, 2021

Mr. John Berlin,

President
Cherry Corporation

Dear Mr. Berlin:

You have requested that we audit the financial statements of Cherry Corporation which comprise the
statement of financial position and income statement, statement of changes in equity and cash-flow
statement for the year ended, and a summary of significant accounting policies and other explanatory
information. We are pleased to confirm our acceptance and our understanding of this audit
engagement by means of this letter. Our audit will be conducted with the objective of our expressing
an opinion on the financial statements.

We will conduct our audit in accordance with Philippine Standards in Auditing. Those Standards
require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. With your cooperation, we believe that our audit will
provide a reasonable basis for our opinion.

Our procedures will include tests of documentary evidence supporting the transactions recorded in
the accounts, and direct confirmation of receivables and certain other assets and liabilities by
correspondence with selected customers, creditors, legal counsel, and banks and because of this, we
look forward to full cooperation with your staff and we trust that they will make available to us
whatever records, documentation and other information are requested in connection with our audit.

Given all the needed documents and evidences. An audit is not designed and cannot be relied upon to
disclose all fraud, defalcations, or other irregularities but surely we will inform you of any material
errors, and all irregularities or illegal acts, unless they are clearly inconsequential, that come to our
attention.

Our fees which are based on the time by individuals assigned to the engagement will be Php100,000
plus out of pocket expenses and will be billed as work progresses. Individual hourly rates vary
according to degree of responsibility involved and the experience and skilled required.

This letter will be effective for future years unless terminated, amended, or superseded. Any changes
you may want in this engagement should come to our attention.

Please sign and return the attached copy of this letter to indicate that it is in accordance with your
understanding of the arrangements for our audit of your financial statements.

Yours truly, Acknowledged on behalf of Cherry Corporation by

______________ _________________
Shiela Sevilla John Berlin
Group 10 Co. CPAs President
April 12, 2021