Question

You are an audit manager at a regional CPA firm (Wynken, Blynken and Nod). You have recently been appointed to the board of directors of a local nonprofit corporation. The chairman of the board of the organization is Bart Bartleby, who is also the owner of a small but growing software development firm (Bartleby’s Bytes). You have been quite active in the nonprofit organization and have developed a good relationship with Bart. Bart approaches you at the end of a board meeting and asks if you‘d be interested in performing an audit on his company (Bartleby’s Bytes). Bart explains that the company is attempting to secure a substantial amount of additional financing as part of a plan to acquire a competitor company. The bank has indicated that an audit would be required before the loan could be approved and that annual audits would be required over the life of the loan, if granted. You’re very excited about the prospect of bringing a large audit client to your firm and you let Bart know that you’re definitely interested. You explain that all new clients must be approved by firm’s managing partner, Will Wynken and that Will would expect a certain amount of background information about the company before making a decision. Bart understands and hands you internally prepared financial statements for Bartleby’s Bytes for the past three years. Bart also gives you the names and numbers of the company’s banker, the company’s legal counsel, and a few business references. You review the financial statements, noting that the company is quite profitable and has been growing quite rapidly over the past three years. You expect that future audit fees would be significant. Over the next few days, you contact the references given to you by Bart. All of the feedback is positive. Bart appears to be a highly respected businessman and relationships between the company and its suppliers and its customers appear strong. You also run a credit check on the company. Nothing negative appears on the report. As a final check, you google Bart and his company. Nothing negative turns up on the company but you do find a newspaper article, dated about five years ago, with some information about Bart. Apparently, Bart previously owned a real estate development company. The IRS audited the company and Bart was questioned about the details of a large capital loss reported on the sale of a tract of land to a trust. The large capital loss significantly decreased the amount of tax paid by the development company during the year under IRS audit. Bart told the IRS agent that he had lost all the supporting documentation for the sale and that he had no way of finding out the names of the principals of the trust. The IRS auditor later discovered that the land was recorded in the name of Bart’s daughter and that Bart himself was listed as the trustee. The IRS disallowed the loss and Bart was assessed a fraud penalty. Do you think your firm should accept Bartleby’s Bytes as an audit client? If not, why not? If you think they should, what arguments would you give the audit partners to convince them?

Answer 1

Answer- I think the firm should give an opportunity to Bart Bartleby because he has a good record and reputation since three years. I would suggest the audit partners to give one chance to him because all of the feedback was positive and he is a known face of the market. I would also suggest my partners to investigate properly before taking a final decision because an article showed that Bart was assessed a fraud penalty, otherwise everything is good and in his favour.