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CASE STUDY: BUNDY SERVICE STATION LTD

Bundy Service Station Ltd ('Bundy') was founded in 2002 and operates a successful fuel service station, motor repair workshop and second-hand car dealership from premises off the Bruce Highway route on the outskirts of Bundaberg. Mr Mac Brody, Mr Ben Pham and Mr Adam Hooper are the three founding shareholders of Bundy. Mac is a Chartered Accountant, while Ben trained as a motor mechanic.Adam, who is an accomplished drummer, started studying an Engineering degree, but never completed it as he spent a few years travelling and performing with his band, Spastix.The directors of Bundy comprise Adam (Chief Executive Officer), Ben (Chief Operations Officer) and Mac (Chief Financial Officer). The financial year of Bundy ends on 31 December each year.

Financial department and external auditors

Adam's wife, Mrs Holly Hooper CA, is the financial manager of the company, and is assisted by a bookkeeper, Mr Richard Sharp. Bundy is a successful business and has been a client of Bean & Associates, a firm providing audit, advisory and taxation services, since Bundy's incorporation. Mr Doug Bean, the senior partner of Bean & Associates, has always been involved with Bundy, first as the partner responsible for the audit and later as business and tax advisor. Mr Josh Bean, Doug's son, has been the partner responsible for the audit since 2014.The engagement team that is currently commencing the 2019 Bundy audit, consists of four members, namely three trainee accountants - Mr Kevin Johns, Ms Belinda Strong and Mr David Gordon - and an audit manager, Mr Selby Cameron.

Background and understanding of the entity

Two months ago, Mac married Jenna, who recently qualified as a professional Chartered Accountant (CA) after completing the required work experience at Bean & Associates in September 2019, with Doug Bean as her recognised mentor. They met when Jenna did some control testing at the second-hand car dealership. Jenna, who now owns her own consulting practice, regularly questions the technical IFRS skills of Holly and her team and she has in fact made accusations of financial mismanagement. Although not proven, the accusations placed pressure on the relationship between the three directors and caused them to lose focus on the running of their departments.

Jenna has also highlighted some internal control deficiencies, non-compliance with health and safety regulations and corporate governance issues that she identified during the audit she performed in 2018. In her opinion Josh had not properly responded to these at the time. She also feels that some of the tax planning opportunities proposed by Doug, which the company has implemented, are too risky. She proposed that the company appoint her as a consultant to address these issues and also to compile the company's 2019 annual financial statements in terms of IFRSs.

Cougar Services Bundy has been in discussions with Cougar Services ('Cougar'), a Brisbane-based Limousine service company to enter a joint venture with them to expand the limousine service to the Bundaberg region. Bundy recently held a cocktail evening to promote their business, to which it invited Cougar representatives as well as the Bean & Associates audit team. Kevin, the trainee accountant from Bean & Associates, realised that he had studied with Ms June Clarkson, a representative of Cougar, and the two of them started chatting about the potential agreement between Bundy and Cougar. Kevin asked June a couple of questions regarding the impact of the potential arrangement with Bundy, including how the price of limousine hire would be determined, and what she thinks the potential profit impact on Bundy would be. Kevin was excited about the potential agreement, and shared his knowledge based on his work on the audit team. He hoped that it would help Bundy to secure the agreement.

REQUIRED:

1. Discuss the threats to Bean & Associates' independence and identify appropriate actions Bean & Associates should consider to mitigate the threats, to ensure its partners and staff comply with the APES 110 Code of Ethics for Professional Accountants.Present your answer in tabular format.

2. Discuss the professional conduct of Jenna in terms of the APES 110 Code of Ethics for Professional Accountants.

3. Discuss, with reference to APES 110 Code of Ethics for Professional Accountants, any concerns you may have in relation to the audit team's attendance and conduct at the cocktail evening held by Bundy.

Please use the latest version of the Code of Ethics, which can be found in the course site, or at this link:

https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=2ahUKEwiiPDe_tblAhXJbSsKHRaPBMoQFjAAegQIAhAC&url=https%3A%2F%2Fwww.apesb.org.au%2Fuploads%2F home%2F02112018000152_APES_110_Restructured_Code_Nov_2018.pdf&usg=AOvVaw2xNBYgvGwnuJZ Cepe2WZ9b