Ron McLellan established his business, McLellan’s Shoes, in 1985. Since then, he has run his…
Ron McLellan established his business, McLellan’s Shoes, in 1985. Since then, he has run his business as a sole proprietor. Ron keeps records and his wife helps him prepare basic accounting records. As McLellan’s Shoes has no outside owners, Ron has never seen the need to have his accounts audited. When Chip Masters from Cloud 9 Inc. expressed an interest in buying McLellan’s Shoes in 2020, Ron was asked to provide audited financial statements. Ron discussed his concerns about having an audit with his friend Ernie Black. Ernie is concerned that Ron may forget their conversations and has asked you to prepare a summary of the issues listed below for Ron.
a. What are the main differences between a financial statement audit, a compliance audit, and an operational audit?
b. What is the difference between reasonable assurance and absolute assurance?
c. Why would Chip ask that Ron have the financial statements for McLellan’s Shoes audited rather than reviewed?
d. What factors should Ron consider when selecting an accounting firm to complete the McLellan’s Shoes audit?