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Hardeep Rahman is an audit senior with a national audit firm. Hardeep has been on the audit engagement of a private company. Grey &

Sons Construction Ltd$.$ Grey & Sons has been a client of the audit firm for a few years, and it has significant revenues but its

profitability fluctuates. The construction company is managed by Sam Grey, who owns $51$ percent of the business, and his son Josh,

who owns $4$ percent of the business. The remaining $45$ percent of the business is owned by a variety of shareholders who invested in

the business at a time Sam wanted to expand and needed a cash infusion to grow. The minority shareholders are not active in the

business and so when they made their initial investment, they insisted that the annual financial statements be audited so they could

have an independent opinion on the financial results.

Hardeep is now auditing the payables and expenses. He is aware that select members of management have company credit cards for

business$-$related expenses. As Hardeep reviews the related payables, he notes that a number of significant charges are very large

purchases of personal goods. It also comes to his attention that Sam is renovating his home, and he is buying most of the materials

through the construction business. Most of the expenses are being recorded as repairs and maintenance, and supplies expense.

Hardeep determines that the total amounts charged are just above materiality. He informs the audit partner, who says he will discuss

this with Sam when he meets with him next week.

Apply the ethical framework to this situation.

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