To prepare for this discussion review the chapter readingassignments. While doing the reading think about your responses tothe identified questions, AND respond to your colleagues’ postingsin one or more of the following ways:
- Ask a probing question.
- Share an insight from having read your colleague’sposting.
- Offer and support an opinion.
- Validate an idea with your own experience.
- Make a suggestion.
- Expand on your colleague’s posting.
Tammy Potter, a new partner with the regional CPA firm of Tower& Tower, was recently appointed to the board of directors of alocal civic organization. The chairman of the board of the civicorganization is Lewis Edmond, who is also the owner of a realestate development firm Tiera Corporation.
Potter was quite excited when Edmond indicated that hiscorporation needed an audit and he wished to discuss the matterwith her. During the discussion, Potter was told that TieraCorporation needed the audit to obtain a substantial amount ofadditional financing to acquire another company. Presently, TieraCorporation is successful, profitable, and committed to growth. Theaudit fee for the engagement should be substantial.
Since Tierra Corporation appeared to be a good client prospect.Potter tentatively indicated that Tower & Tower wanted to dothe work. Potter then mentioned that Tower & owner’s qualitycontrol policies require an investigation of new clines andapproved by the managing partner, Lee Tower.
Potter obtained the authorization of Edmond to make thenecessary inquires for the new client investigation. Edmond wasfound to be a highly respected member of the community. Also, TieraCorporation was highly regarded by tis banker and its attorney, andthe Dun & Bradstreet report on the corporation reflectednothing negative.
As a final part of the investigation process, Potter contactedEdmond’s former tax accountant, Bill Tuner. Potter was reprised todiscover that Turner did not share the others’ high opinion ofEdmond. Turner related that on an IRS audit 10 years ago, Edmonds’former tax accountant, Bill Turner. Potter was surprised todiscover that Turner did not share the others’ high opinion ofEdmond. Turner related that on an IRS audit 10 years ago. Edmondwas questioned about the details of a large capital loss reportedon the sale of a tract of land to a trust. Edmond told the IRSagent that he had lost all the supporting documentation for thetransaction, and they had no way of finding out the names of theprincipals of the trust. A search by an IRS auditor revealed thatthe land was recorded in the name of Edmond’s married daughter andthat Edmond himself was listed as the trustee. The IRS disallowedthe loss and Edmond was assessed a civil fraud penalty. Potter wasconcerned about these findings, but eventually concluded thatEdmond has probably matured to a point where he would not engage insuch activities.
- Present arguments supporting a decision to accept TieraCorporation as an audit client.
- Present arguments supporting a decision NOT to accept TierraCorporation as an audit client.
Assuming that you are Lee Tower, set forth your decisionregarding acceptance of the client, identifying those argumentsfrom pat (a) or pat (b) that you found most persuasive.
