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CPAs Legal Liability when Accepting an Engagement You are a partner in the Denver office of a national public accounting firm. During the audit of

CPAs Legal Liability when Accepting an Engagement

You are a partner in the Denver office of a national public accounting firm. During the audit of Mountain Resources, you learn that this audit client is negotiating to sell some of its unproved oil and gas properties to SuperFund, a large investment company. SuperFund is an audit client of your New York office.

Mountain Resources acquired these properties several years ago at a cost of $15 million. The company drilled several exploratory wells but found no developable resources. Last year, you and Mountain Resources agreed that the value of these unproved properties had been impaired as defined in Accounting Standards Codification, section 932-360-35-11. The company wrote the carrying value of the properties down to an estimated realizable value of $9 million and recognized a $6 million loss. You concurred with this treatment and issued an unqualified auditors report on the companys financial statements.

You are now amazed to learn that the sales price for these properties being discussed by Mountain Resources and SuperFund is $42 million. You cannot understand why SuperFund would pay such a high price and you wonder what representations Mountain Resources may have made to SuperFund concerning these properties. The management of Mountain Resources declines to discuss the details of the negotiations with you, calling them quite delicate and correctly pointing out that the future sale of these properties will not affect the financial statements currently under audit.

Required:

Summarize the arguments for advising SuperFund (through your New York office) that you consider the properties grossly overpriced at $42 million.

Summarize the arguments for remaining silent and not offering any advice to SuperFund on this matter.

Express your personal opinion as to the course of action you should take. Indicate which arguments from part (a) or part (b) most influenced your decision.

Your Portfolio Project should be 4-5 pages.

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