I REALLY NEED HELP PLEASE!

King Companies, Inc. (KCI) is a private company that owns five auto parts stores in urban Los Angeles, California. King Companies has gone from two auto parts stores to five stores in the last three years, and it plans continued growth. Eric and Patricia King own the majority of the shares in KCI. Eric is the chairman of the board of directors of KCI and CEO, and Patricia is a director as well as the CFO. Shares not owned by Eric and Patricia are owned by friends and family who helped the Kings get started. Eric started the company with one store after working in an auto parts store. To date, he has funded growth from an inheritance and investments from a few friends.

Their accounting firm, Thornson & Danforth LLP, has done tax returns for the company, as well as for the King family, for the last 10 years. Thornson & Danforth is a CPA firm with 55 professionals, which performs audit and tax services for a number of clients. James Danforth, a tax partner in the CPA firm, is a long-time friend of Eric and owns 5% of KCI.

In October 2021, Eric opens a conversation with James about upcoming expansion and the plan to open three to five more stores. Eric has learned this will mean taking on significant debt to fund the growth. Every lender that Eric has talked with has been impressed with the growth to date with equity, but the lenders will require an annual audit. Eric asks James if his firm can perform the annual audit.

James explains his concerns about the independence of Thornson & Danforth. Because the expansion is still in the early planning stages, Eric agrees to purchase James' 5% stake in KCI in November 2021. James expects that the first audited financial statements that KCI will need will be for the year ended December 31, 2022.

Application of the conceptual framework Thornson & Danforth plans to continue to prepare tax returns for KCI and the King family. The firm also plans to perform the audit for the year ended December 31, 2022.

1. Identify any ethics issues that exist.

2. Gather appropriate information for each ethical issue.

3. Analyze the relevant information for each ethical issue and evaluate the alternatives.

4. Draw a conclusion about each ethical issue and explain your reasoning. Cite appropriate references from the AICPA Code of Professional Conduct (available at the AICPA website, www.aicpa.org).