Audit Engagement Email: Response

Draft the midterm in an actual email to send to me as if I was the audit partner. No more than one page down.

Situation: During the last year, you were part of the team that audited Corporate Sentry, Inc., a publicly held company that manufactures alarms and other security devices.

Because of competitive pressures, Corporate Sentry, Inc. plans to reduce costs so that it can more competitively price its products. As part of the cost reduction efforts, Corporate Sentry, Inc. is interested in understanding the advantages and disadvantages of other manufacturing options: continue to make its products onshore (within the United States), offshore (e.g., potentially in China, India, or the Philippines), or outsource to a third party vendor. As part of this analysis, Corporate Sentry, Inc., would also like to better understand the differences between engineered costs and discretionary costs and how such a distinction may be relevant to their downsizing plans (especially as it relates to the three manufacturing options).

The audit went quite well, and the client had high praise for the work done by the audit team. Approximately six months after the completion of the audit, the Audit Partner (Bob Regents) receives this email from Jerome Roberts, a president of Corporate Sentry, Inc.

Hi Bob,
We are still talking around here about the good job you and the other members of the audit team did on our audit. You all seemed to have a thorough understanding of our business, and we found working with you a pleasure. Based on the good experience we had with the audit, we would like to ask you some questions and potentially engage your firm to do additional work for us.

As you are aware, the alarm and security industry is very competitive. We can only continue to compete within the industry if we are able to increase our margins, specifically by cutting costs. We’d like your help in understanding the advantages and disadvantages of other manufacturing options: continue to make our products onshore (within the United States), offshore (e.g., potentially in China, India, or the Philippines), or outsource to a third party vendor. We would also like to better understand the differences between engineered costs and discretionary costs and how such a distinction may be relevant to our downsizing plans (especially as it relates to the three manufacturing options).

Once we have this understanding, we like to engage your company to assist us in performing a formal financial analysis as it relates to the costs for each manufacturing option and how it might affect our cost reduction initiative. We would also like your professional opinion as to which manufacturing option might be best for us.

Ask: In receipt of the letter from Jerome Roberts, the Audit Engagement Partner (Bob Regents) asks you (as the Audit Engagement Manager) to draft a letter in response so he may be able to review and send to Jerome Roberts. While writing the letter, use proper format, effective organization and appropriate style. Invent any information you feel is necessary to make your letter complete.

Within the letter include the following:
• Advantages and disadvantages of other manufacturing options: continue to make alarm and security products onshore (within the United States), offshore (e.g., potentially in China, India, or the Philippines), or outsource to a third party vendor.
• Differences between engineered costs and discretionary costs and how such a distinction may be relevant to their downsizing plans.
• Identify other concerns Mr. Roberts may not have considered but should evaluate (e.g., cross border regulations, export/import taxes, etc.).
• Define what services you may or may not provide to Corporate Sentry, Inc. because of your existing audit relationship.

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