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Memphis Reality Case Memo

In:

Submitted By Kingsport423
Words 498
Pages 2
To: Bob Belmont
From: Jim Shorts
Date: September 12, 2013
Subject: Memphis Reality Audit Engagement

Mr. Belmont,

Memphis Reality needs an audit for a large amount of financing in some of their estate investments. Justin Case, the owner of Memphis Reality and also a local nonprofit organization, told me that the company has never been audited. The firm is quite successful and has a solid reputation in the community. However, after closer examination of Justin Case’s history, I have my doubts.

I contacted Case’s tax accountant, Jo King, to verify his previous financial history. Mr. King mentioned that Case was questioned by the IRS about a substantial capital loss 10 years ago. The loss came from a sale of a tract of land to a trust. Case allegedly lost all documentation and had no way of finding out the principals of the trust. Further investigation revealed that the land was recorded in the name of Case’s daughter, and that Case himself was listed as a trustee. The IRS rejected the loss and Case was assessed a civil fraud penalty.

This illegal activity seems to reflect nothing of Case’s behavior now. As I mentioned before, internet searches of Case, Case’s banker and attorney, and the Dun & Bradstreet report speak very highly of him. Being on the board of directors for Case’s nonprofit organization, I have taken a considerable liking to this investigation. Nevertheless, we must uphold our professional skepticism. Why has Memphis Reality never been audited? Why should T&A CPA’s accept him as a client due to Case’s previous behavior?

I have broken down these arguments to make a sensible decision. I am leaning towards declining the audit engagement, however we must consider both sides.
Accept the Memphis Reality Audit Engagement: * Review the investments and receive a substantial audit fee. * Trust that Justin Case has matured since his incident with the IRS and will not engage in those activities again. * Gain a new client that I have close ties with. * Ignore some of the quality control policies that T&A CPA’s has put in place to closely investigate new clients. * Ignore some sense of professional skepticism in regards to Justin Case’s future behavior.
Decline the Memphis Reality Audit Engagement: * Bypass the time and effort it would take to audit this suspicious client. * Miss out on the opportunity of a substantial audit fee and the addition of a new client. * Determine that Justine Case has not matured and is still capable of committing illegal acts. * Uphold our professional skepticism and quality control policies for new clients. * Heed the opinion of Jo King, the former tax accountant of Justin Case. * Disregard the approval of the community
With these opinions in mind, I believe the choice to accept or decline the Memphis Reality audit engagement is clear. I would decline this audit engagement and hope that my analysis will assist you in your decision. Please let me know if you have any questions.

Best Regards,

Jim Shorts

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