Exercise

Characters

Our case study begins with two brothers, Evan and Anthony, a pair that couldn$$t be more different than if they tried.

Anthony known as $$Auto$$ is a dashing young man in his early $30$s$.$ Dashing not only because of his good looks but because of his need for speed. Auto started out tearing around town on his BMX$,$ graduated to a dirt bike and ATV until finally he was old enough to drive a car. Since then any time you heard a squeal of tires or whiff of burned rubber, it was safe to assume that Auto was nearby. Auto owns a used car dealership. His speed for acquiring the best and most sought after used cars is like none other and his dashing looks helps sell the cars almost as fast as they arrive on his lot.

Evan on the other hand is an athletic and brilliant young man in his late $20$s$.$ Evan$$s hunger is not for speed but for wrestling down complex issues. As a young boy, Evan excelled at chess and baseball moving on to tennis and computer programming, taking down all his opponents with his keen intellect and athletic prowess. Evan is a partner in a three office CPA firm that specializes in servicing local business in Ocean County, NJ$.$ The firm, and Evan are known for keeping the financials of their clients well organized, and never paying taxes that aren$$t absolutely necessary! Local bankers breathe a sigh of relief when a business approaches them and they learn that Evan is their CPA because they know he will shoot straight with them.

The final component of the case study is Robert. Robert lived next door to Auto and Evan when growing up and the three have been best friends since childhood. Growing up the threesome spent every spare moment in Robert$$s father$$s auto$-$repair shop. Today, Robert is an $$ber mechanic and owns his own auto supply store and can often be found checking under the hood of Auto$$s latest acquisitions for his lot. Any issue that Auto can$$t figure out, Robert is sure to handle.

Situation: Following is just one possible situation and just one possible solution of how a firm might decide how to handle such situation, but encourage the group to develop their own.

Robert has been using his father$$s CPA, Jay Bird CPA, for his auto supply store until Jay passed away unexpectedly. Robert approached Evan and asked if he can do the quarterly reviews that he needs to submit to his bank.

So given the background, the issue here is that Robert is Evan$$s close friend and under the Code the independence rules do not extend to friends so there is no black and white answer. So let$$s apply the framework to this fact pattern$)$

Since Robert is a close personal friend, Evan$$s firm identifies that the familiarity threat exists.

So Step One $$ the firm has identified the familiarly threat exists.

Since the friendship has existed since childhood, and Evan, Auto, and Robert vacation with each other$$s families and often spend holidays with each other, Evan$$s firm believes the familiarly threat is significant.

So Step Two $$ the firm believes the familiarly threat is significant.

So next Evan$$s firm needs to identify what safeguards could be applied to reduce the familiarity threat to an acceptable level. The firm decides to implement two safeguards.

First, the firm decides to keep the Evan off of the engagement.

Second, since the firm is relatively small, and Evan may interact with audit staff on other engagements, the firm also decides it will perform a second review of work on this engagement that is performed by staff who work with Evan on other engagements.

The firm believes that once these safeguards are implemented that the familiarity threat will be reduced to an acceptable level so that they may accept the review and bookkeeping engagement.

To be in compliance with the ethics rules, the firm documents the threat that it identified as being significant and what safeguards it applied. $($If the firm forgot to prepare this documentation, but could demonstrate that safeguards were applied that eliminated or reduced significant threats to an acceptable level, then the member would be in violation of the Compliance with Standards rule not the Independence rule.$)$

When using the conceptual framework, if a threat is significant what should you do$?$

If Evan implemented the same safeguards, could he perform an annual review for Auto$$s used$-$car dealership?

Answer rating: 100% (QA)

Situation Analysis 1 Key Characters Evan Partner in a CPA firm Auto Evans childhood friend and owner of a used car dealership Robert Evans childhood f... View the full answer