5A. MEMORANDA Barnes and Fischer should not accept Ocean Manufacturing, Inc.

, because the risks associated with this client outweigh the benefits of accepting the engagement. We feel as though, after a conducting a thorough investigation on Ocean, accepting the client would elevate our engagement riskwhich could ultimately harm our firm. The risks associated with this client include: Ocean Manufacturing has had problems with their auditors. Over the past 12 years Ocean Manufacturing switched auditors three times and had problems agreeing on auditing fees. The previous auditor had two major problems with Ocean: Oceans complex IT system and managements tendency to aggressively reflect year-end accruals and revenue in order to meet creditor requirements. In addition, there have been many problems with tracking and recording transactions that occur within the entity. All of these are risk factors can lead to known or likely material misstatements being present within the companys financials, and ultimately they the potential to cause engagement complications. Judging from the past, if we ask Ocean to change or alter any aspects regarding their business, it is likely they will drop our firms services and search for another auditor. There have also been problems related to Oceans management: The previous Controller, who poorly managed the companys IT system, resigned from the company; the present Controller lacks the experience the company needs; and the Vice-President of the company was charged with a misdemeanor and was involved with illegal activity. Not to mention, Oceans President was hesitant in letting our firm communicate with the

predecessor auditor. All of these factors act as red flags when determining whether or not we would like to take on this company as a client. Also, conducting analytical procedures shed light on Oceans financial position compared to other companies within the industry. There are too many substantial differences between the Oceans financial position and the industrys position. This may shed light on Oceans going concern within the future. Because our lack of experience in the small home appliance industry, we believe conducting an audit for Ocean will be more costly to our firm. Not only are the risks costly, but also the time and money involved in taking on this client are much too costly. Benefits need to outweigh the costs in order to accept this engagement. After all the disadvantages listed, there are still some positive aspects about accepting this company as a client. Although we firmly believe Barnes Fischer should not take on Ocean as an audit client, we possibly believe we could take them on as an IT systems client. We will continue to build a relationship with this company by accepting them as an IT client. Our firm believes we have the resources to help resurrect the companys IT systemwe will be able to help track its weaknesses, modify the system, and provide training and instruction to company employees. Overall, this will help the companys accounting system to become fully functionaleliminating the problems that occurred previously.