| Course | ACC 640 Auditing |
|---|---|
| Module | Module 2 |
| Paper type | graduate client acceptance memo for a new audit engagement |
| Length | About 1,030 words, 6 pages |
| Format | APA 7 student paper |
| School | Southern New Hampshire University |
| Program | MS Accounting |
| Updated | October 2026 |
Free sample paper for ACC 640 Module 2
Client Acceptance Memo: Proposed Audit of Fiscal 2025 Financial Statements
[Student Name]
Southern New Hampshire University
ACC 640: Auditing
Module Two Assignment
[Instructor Name]
[Date]
The organization, setting and figures below are a composite written as a model document. No real employer, client, colleague or patient is described.
Client Acceptance Memo: Proposed Audit of Fiscal 2025 Financial Statements
Purpose
This memo evaluates whether the firm should accept the audit of the company's fiscal 2025 financial statements and internal control over financial reporting. The company designs outdoor apparel and camping gear, sells about 60 percent through its own website and 40 percent through sporting goods retailers, and stores inventory at two third-party logistics warehouses. Its auditor of nine years resigned in August 2025. The evaluation follows PCAOB AS 2610 on communications with the predecessor and the firm's acceptance policy (Public Company Accounting Oversight Board, 2016).
The Resignation and the Filing
The company's Form 8-K reporting the change states that there were no disagreements with the predecessor on accounting or auditing matters. It does report one reportable event: the predecessor had communicated a material weakness in IT general controls over the online sales platform, specifically inadequate restriction of developer access to production systems. The resignation followed the company's late filing of its second-quarter Form 10-Q, which the company attributed to the departure of its CFO in May. Shu (2000) found that auditor resignations are associated with increases in client risk, including litigation risk, so the team approached this resignation as a reason to dig, not as a formality.
Predecessor Communications
With the company's written permission, the engagement partner met the predecessor's partner on September 9. The inquiries AS 2610 requires covered the integrity of management, disagreements with management on accounting principles or auditing procedures, communications to the audit committee about fraud, illegal acts and internal control matters, and the predecessor's understanding of the reasons for the change. The predecessor reported no concerns about management's integrity and no disagreements. It confirmed the material weakness and added that it had raised the returns reserve methodology with the audit committee as an area needing better documentation. Its stated reason for resigning was a firm-wide decision to reduce its consumer products practice in the Northwest, which the partner found credible given public reports of the firm's restructuring. The predecessor agreed to allow review of its working papers after acceptance.
Management Integrity
Beyond the predecessor, the firm searched litigation and regulatory records, reviewed the backgrounds of the CEO, the interim CFO and the audit committee chair, and spoke with the company's outside counsel. No enforcement actions, fraud allegations or unusual litigation were found. The interim CFO is a former controller of a larger apparel company with a strong reputation. The audit committee chair is a retired audit partner, which supports effective oversight.
Independence
The firm's independence check found one issue. In 2024, the firm's advisory group helped configure the company's new ERP system, including the order-to-cash module. Under SEC Rule 2-01(c)(4)(ii), designing or implementing a financial information system is prohibited during the audit and professional engagement period. The audit period is the fiscal year beginning January 1, 2025, and the professional engagement period begins when the firm signs the engagement letter. The advisory work ended in November 2024 with final billing in December, before both periods began. Independence is therefore not impaired under the rule. Because the audit will test controls in a system the firm helped configure, the partner concluded that the appearance concern should be addressed by staffing the IT audit with specialists who had no role in the advisory work and by disclosing the prior services to the audit committee as AS 1301 and PCAOB Rule 3526 require.
Engagement Risk
Several factors raise engagement risk. The IT material weakness affects the platform that produces 60 percent of revenue. The CFO's departure and late filing suggest a stressed finance team. Returns run about 14 percent of online sales, and the reserve methodology was questioned. Inventory sits at third-party warehouses the firm has not visited. Doyle et al. (2007) found that material weaknesses are more common at smaller, rapidly growing and more complex companies, a profile this client fits, so the team should plan for the weakness to still exist at year end. Offsetting factors include a credible reason for the resignation, an experienced audit committee, no integrity concerns and a profitable business with no going concern questions.
Resources and Fee
The firm has an Oregon office with consumer products experience and IT audit specialists. Accepting would require assigning an engagement quality reviewer from another office, two IT specialists, and an inventory team for both warehouses, and planning for an ICFR audit in which the IT weakness may lead to an adverse opinion. The proposed fee should reflect first-year costs and the higher risk; a fee set to win the engagement would pressure the team to cut work in exactly the areas that need it (Arens et al., 2020).
Planned Audit Responses
If the firm accepts, the warning signs become planning inputs. The IT weakness means the team cannot rely on automated controls over online orders until remediation is tested, so revenue testing for the first three quarters will be mainly substantive, using data analytics over the full order population rather than samples. The returns reserve will be treated as a significant risk, with the team developing its own expectation from return data by product line rather than reviewing management's model alone. Opening balances need attention in a first-year audit: AS 2610 permits use of the predecessor's working papers, but the firm remains responsible for evidence that opening inventory and the opening reserve are not materially misstated, which will require rollback procedures from the first year-end count. The late filing suggests the close process may lack capacity, so the team will agree a detailed schedule of client deliverables with the interim CFO in October. Finally, the team will plan to report on internal control with the possibility of an adverse opinion, and will discuss that outcome early with the audit committee rather than in February.
Recommendation
The firm should accept the engagement on four conditions: the audit committee approves the fee and the staffing plan; the predecessor's working papers are reviewed before planning is finalized; the prior advisory services are disclosed to the audit committee in writing; and management commits to a remediation plan for the IT weakness, with access restrictions in place before the fourth quarter. These conditions answer each warning sign identified above.
References
Arens, A. A., Elder, R. J., Beasley, M. S., & Hogan, C. E. (2020). Auditing and assurance services (17th ed.). Pearson.
Doyle, J., Ge, W., & McVay, S. (2007). Determinants of weaknesses in internal control over financial reporting. Journal of Accounting and Economics, 44(1-2), 193-223. https://doi.org/10.1016/j.jacceco.2006.10.003
Public Company Accounting Oversight Board. (2016). Initial audits: Communications between predecessor and successor auditors (AS 2610). Author.
Shu, S. Z. (2000). Auditor resignations: Clientele effects and legal liability. Journal of Accounting and Economics, 29(2), 173-205. https://doi.org/10.1016/S0165-4101(00)00019-7
What the ACC 640 Module 2 instructions ask for
The Module Two assignment in ACC 640 usually asks you to decide whether an audit firm should accept a new client, often one with warning signs. Plan to address the communications required with a predecessor auditor under AS 2610, the integrity of management, independence under SEC and PCAOB rules, the firm's competence and resources, and the engagement risk factors, then make a recommendation. Many versions ask what conditions or responses would make acceptance appropriate, such as specialists or an engagement quality reviewer. Cite the specific requirements rather than describing acceptance in general terms, and explain how each risk would affect the audit plan if you accept. A recommendation with conditions is often stronger than a plain yes or no.
How this ACC 640 Module 2 client acceptance assignment example is built
The memo evaluates an Oregon apparel company whose predecessor resigned after a late quarterly filing; the change-of-auditor filing reported no disagreements but disclosed a material weakness in IT general controls over the online sales platform. With the client's permission, the firm inquired of the predecessor about integrity, disagreements, fraud and control communications, and the reasons for resigning. An independence issue arises because the firm's advisory group helped configure the client's ERP system in 2024; because the work ended before the audit period began, independence is not impaired. The memo recommends accepting, with IT specialists, an engagement quality reviewer and a fee reflecting the risk, and it maps each warning sign to a planned audit response.
Where the ACC 640 Module 2 rubric puts the points
Rubrics for the client acceptance assignment typically score the predecessor communications, evaluation of management integrity, independence analysis, assessment of engagement risk, the firm's capacity to perform and the recommendation. Top papers cite AS 2610's required inquiries, analyze the change-of-auditor disclosure, apply the SEC's rules on nonaudit services with attention to timing, and tie each risk to a planned response. Graders also reward recognizing what a resignation may signal and explaining how the predecessor's answers were corroborated. Common deductions include skipping the predecessor inquiry, treating any prior consulting as automatically impairing independence, ignoring the material weakness and recommending acceptance without conditions.
ACC 640 Module 2 help: the mistakes that cost points
Acceptance memos most often slip on independence, either missing a prohibited service or concluding too quickly that one impairs the engagement without checking whether it falls in the audit and professional engagement period. A second weak spot is the predecessor communication, which must occur before acceptance and requires the client's permission. If your case involves a private company, the AICPA's equivalent standard applies, with similar inquiries. List every warning sign first, then pair each with a response or a reason it is acceptable; a sign left unanswered is what graders and acceptance committees both notice. Keep the memo factual and dated, since it becomes part of the engagement file.
Get ACC 640 Module 2 written to your instructions
Send the ACC 640 Module 2 assignment and the client facts. The memo will apply the predecessor, independence and risk requirements step by step, cite the standards and SEC rules and reach a supported recommendation. Plan on roughly two days; your first costs nothing. The paper above is an original model document written by our desk, not a submitted student paper and not an official Southern New Hampshire University document.
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ACC 640 Module 2 questions, answered
Where can I find a free ACC 640 Module 2 Client Acceptance sample?
This page includes a full ACC 640 Module 2 client acceptance memo for a company whose prior auditor resigned.
What must a successor auditor ask the predecessor?
Under AS 2610, inquiries include management's integrity, disagreements with management on accounting or auditing matters, communications about fraud, illegal acts and internal control, and the predecessor's understanding of the reasons for the change.
Does prior consulting work always impair independence?
No. SEC rules prohibit certain nonaudit services during the audit and professional engagement period; services performed and ended before that period generally do not impair independence, though they must be evaluated.
What is a reportable event in an auditor change?
A matter the company must disclose when it changes auditors, such as a material weakness the predecessor communicated, even when there were no disagreements.
Why do auditor resignations matter?
Research finds resignations are associated with higher client risk, so a successor should look hard at why the prior firm left.