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ABSTRACT: The Upper Plains Auto Rentals (UPAR) case presents an account of issues encountered during the client acceptance and planning stages of the audit of a private rental company (whose identity has been disguised). To facilitate classroom use, the case is divided into two parts. Part I of the case requires students to evaluate the various risks associated with accepting a new audit engagement and Part II addresses audit planning judgments.
The case and teaching notes make four contributions. First, by considering factors evaluated by auditors at the client acceptance stage, Part I of the case provides a convenient, yet realistic, means for discussing the AICPA's recent characterization of "Engagement Risk." This expanded view of risk encompasses not only the traditional audit-risk concepts, but also the risks that pertain to clients' and auditors' businesses. A second contribution is that the case requires students to integrate their knowledge of auditing, financial accounting, and information systems when evaluating risk and developing an audit plan. Therefore, the case is ideal for "capstone courses" that recently have been introduced into the accounting curricula. Third, the case demonstrates how risk assessments evolve as evidence is gathered during audit engagements. Finally, the case is a useful vehicle for introducing auditing research into the classroom, as demonstrated in the teaching note. In so doing, the case provides an opportunity for educators to overcome educational barriers discussed in Auditing Practice, Research, and Education: A Productive Collaboration (AICPA 1995).
Key Words: Engagement risk, Client acceptance, Audit planning.
UPPER PLAINS AUTO RENTALS PART I
UPPER Plains Auto Rentals (UPAR) has operated a national rent-a-car franchise in the upper plains region of the United States since 1981. For the past few years, a sole practitioner in Minneapolis has issued a review engagement report on the financial statements of UPAR. However, during 1996, UPAR switched to a new bank and now is required to have its financial statements audited, beginning with the December 31, 1996 fiscal year-end. Accordingly, UPAR has requested audit proposals from several national and international audit firms. To assist the audit firms in developing their proposals, UPAR has supplied both a copy of its 1995 financial statements (see exhibit 1) and some background information about the company.
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