Melson & Purdork LLP Melson and Purdork (M&P) is a Licensed Public Accounting firm in Thunder Bay, Ontario. M&P provides assurance and non-assurance services to a wide variety of clients in Northwestern Ontario. M&P was started over 7 years ago by two colleagues (Foggy Melson and Matt Purdork) who used to work together at a top national firm. Since starting the firm, M&P has grown significantly over with a forecast of $4M in gross fees in the current year. To support the load M&P had to employ additional individuals, which includes 3 managers, 6 senior accountants, and 6 junior accountants, including you a senior manager. One of Matt and Foggy’s focuses is to ensure independence and quality control are upheld at M&P, however, Foggy has been preoccupied with client work and Matt always seems to be running out of the office in a hurry. As a result, you have been assigned with the responsibility of handling any issues or concerns that may impact the firm’s independence and/or quality control. Foggy meets with you on a monthly basis whereby issues surrounding new/existing clients and other concerns are brought to your attention. After every meeting, Foggy looks to you to prepare a memo to document your analysis regarding any concerns and/or potential violations with the CPA Member Handbook Code of Conduct. Foggy rushes into the boardroom for your scheduled monthly meeting. Taking a deep breath, he says “Sorry, I can’t stay for the meeting as I have client meetings all day I have to prepare for. I documented the issues for this month and would like your recommendations before the end of the week. Also, if you see Matt, tell him I need to talk to him immediately.” He drops the document on the table and rushes off back to his office. You pick up the document and begin to review the concerns identified by Foggy. You noticed over the past couple of months that there have been more concerns than usual which you anticipated as a result of the firm’s growth.

Required - Prepare a memo to be shared with Foggy and Matt regarding each of the issues as they relate to the CPA Code of Professional Conduct. In addressing each issue, be sure to identify the related “fundamental principles government conduct”, specific reference to the CPA Member Handbook Code of Conduct, analysis of the issue and provide a recommended course of action along with what safeguards need to be implemented, if any.

1) Northern Ontario Forestry. (NOF), a large audit client, is owned by Frank Cattle. Frank is planning to retire within the next two years and would like to perform a tax reorganization of NOF shares. Frank has asked M&P to prepare a business valuation report to determine the value of his common shares for the tax reorganization.

2) M&P offers non-assurance services to Fisk’s Automobiles (FA). M&P performs assurance engagements for many of FA’s competitors. The owner of FA demanded that Matt and Foggy provide him with his competitors' sales information for the past year. The owner threatened that if M&P does not provide this information, he will take his business elsewhere.

Answer rating: 100% (QA)

Prepare a memo to be shared with Foggy and Matt regarding each of the issues as they relate to the CPA Code of Professional Conduct In addressing each issue be sure to identify the related fundamental ... View the full answer