Play Green Inc. (PGI), is a public company that operates a number of sports facilities across Canada. Your friend Gildan is a junior auditor with the public accounting firm that has audited PGI for many years. Gildan is auditing the cash balance, and has found some discrepancies between the bank records and PGI’s accounting records. The discrepancies add up to a total overstatement of $135,000, and materiality for this audit has been set at $150,000. After enquiring of the PGI accounting manager about these discrepancies, Gildan gets a call from the President’s secretary—the President has asked to meet with the Gildan on this matter.
The President starts off by complimenting Gildan on his good accounting and auditing skills. He says he was very impressed that Gildan was able to discover the problems in the cash accounts. He provides Gildan with a written representation for his audit file stating that the cash discrepancies have been noted by company management, and the cash balance is fairly presented.
The President then tells Gildan that he is starting up a new golf course venture, separate from PGI, and really can use a talented accountant like Gildan to be his business partner in this new venture. Gildan would not be required to make any investment in the new business, but would receive 50% ownership in exchange for providing his accounting services to this business. The President would own the other 50%. Since the work on the new venture would only take Gildan about five hours per week, the President expects Gildan to keep his job with the auditing firm and continue working as the junior auditor on the PGI audit team.
Gildan has come to tell you about this offer from the President because he is very happy about it. At the same time he is a bit concerned that it seems too good to be true, and asks for your advice on what he should do.
Analyze Gildan’s situation and advise him on the best way to proceed.