CASE 2 Exhibit 2-1 Abernethy and Chapman ANALYSIS OF POTENTIAL LEGAL LIABILITY Potential Client: Type of Engagement: Form Completed By: Date: (1) Is the potential client privately-held or publicly-held? (2) Evaluate the possible liability to the client that Abernethy and Chapman might incur, if the engagement is accepted. (3) List the third parties that presently have a financial association with the potential client and could be expected to see the financial statements. (4) Discuss the possibility that other third parties will be brought into a position where they would be expected to see the financial statements of the potential client. (5) Evaluate the possible liability to third parties, both present and potential, that Abernethy and Chapman might incur if the engagement is accepted. Exhibit 2-2 Abernethy and Chapman INFORMATION FROM PREDECESSOR AUDITOR Potential Client: Form Completed By: Predecessor Auditor: Date of Interview: (1) Discuss the predecessor auditor's evaluation of the integrity of the management of the potential client. (2) Did the predecessor auditor reveal any disagreements with management as to accounting principles, auditing procedures, or other similarly significant matters? If so, fully describe these disagreements. (3) What was the predecessor auditor's understanding as to the reasons for the change in auditors? (4) Did the predecessor auditor give any indication of other significant audit problems associated with the potential client? (5) Did the predecessor auditor indicate any problem in allowing Abernethy and Chapman to review prior years' working papers for the potential client? If "yes," explain. (6) Was the predecessor auditor's response limited in any way?
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