Seinfeld, a relatively new partner for Alexander and Dreyfuss, CPAs, has recently received a request to provide a bid to perform audit and other services for Richards Outfitting, a large regional retailing organization with more than 50 stores in the surrounding five state area. Richards is a fast growing companyspecializing in premium outerwear and outdoor sports equipment. It is now publiclytraded on the NASDAQ market and is subject to SEC regulations and filing requirements. Seinfeld realizes that bringing in new clients is important to his success in the firm. Richards looks like a good audit that might provide opportunity to sell other services. Consequently, Seinfeld is thinking about “lowballing” the audit (bidding very low on audit fees) as an effort to gain a foothold in providing other services to the client.

REQUIRED: (1) What additional information should Seinfeld gather about Richards Outfitting before proposing to perform the audit? (2) Auditing firms are often encouraged to bid low for the audit work in order to get the more lucrative consulting work. Explain both the positive and negative effects of such behavior on the public accounting profession. In particular, discuss the potential effect on the audit function within a public accounting firm. (3) Explain how the auditor could use the Internet or other data services to gather information about the potential client. (4) Explain why Seinfeld would want an engagement letter before beginning the audit.