Melson & Purdork LLP Melson and Purdork (M&P) is a Licensed Public Accounting firm in Thunder Bay, Ontario. M&P provides assurance and non-assurance services to a wide variety of clients in Northwestern Ontario. M&P was started over 7 years ago by two colleagues (Foggy Melson and Matt Purdork) who used to work together at a top national firm. Since starting the firm, M&P has grown significantly over with a forecast of $4M in gross fees in the current year. To support the load M&P had to employ additional individuals, which includes 3 managers, 6 senior accountants, and 6 junior accountants, including you a senior manager.

One of Matt and Foggys focuses is to ensure independence and quality control are upheld at M&P, however, Foggy has been preoccupied with client work and Matt always seems to be running out of the office in a hurry. As a result, you have been assigned with the responsibility of handling any issues or concerns that may impact the firms independence and/or quality control.

Foggy meets with you on a monthly basis whereby issues surrounding new/existing clients and other concerns are brought to your attention. After every meeting, Foggy looks to you to prepare a memo to document your analysis regarding any concerns and/or potential violations with the CPA Member Handbook Code of Conduct.

Foggy rushes into the boardroom for your scheduled monthly meeting. Taking a deep breath, he says Sorry, I cant stay for the meeting as I have client meetings all day I have to prepare for. I documented the issues for this month and would like your recommendations before the end of the week. Also, if you see Matt, tell him I need to talk to him immediately. He drops the document on the table and rushes off back to his office.

You pick up the document and begin to review the concerns identified by Foggy. You noticed over the past couple of months that there have been more concerns than usual which you anticipated as a result of the firms growth.

Required - Prepare a memo to be shared with Foggy and Matt regarding each of the issues as they relate to the CPA Code of Professional Conduct. In addressing each issue, be sure to identify the related fundamental principles government conduct, specific reference to the CPA Member Handbook Code of Conduct, analysis of the issue and provide a recommended course of action along with what safeguards need to be implemented, if any.

APPENDIX I

To: Senior Manager, CPA, CA

From: Foggy Melson, CPA, CA

RE: Independence and Quality Control Concerns

1. M&P was selected by CPA Ontario to undergo a public practice inspection this month. Matt was overseeing the officer from CPA Ontario going over a few of M&Ps files. Upon completion, the officer approached Foggy to explain that she could not complete the inspection due to Matts intimidation tactics and did not give her access to one of the files requested.

2. M&P is reviewing a request for a proposal for a review engagement related to the financial statements of Thunder Bay Bulletin (TBB). The request for proposal states that TBB needs the review in order to apply for a bank loan to purchase a new printing press. Furthermore, as TBB has been financially struggling, the CFO said they would pay for the review engagement fee based on 5% of yearly sales.

3. Poindexter Marble and Flooring (PMF) has been a longtime audit client of M&Ps. Foggy has been the lead engagement partner of PMF for the past 7 years. This year will be his 8th year on the engagement.

4. Northern Ontario Forestry. (NOF), a large audit client, is owned by Frank Cattle. Frank is planning to retire within the next two years and would like to perform a tax reorganization of NOF shares. Frank has asked M&P to prepare a business valuation report to determine the value of his common shares for the tax reorganization.

5. M&P offers non-assurance services to Fisks Automobiles (FA). M&P performs assurance engagements for many of FAs competitors. The owner of FA demanded that Matt and Foggy provide him with his competitors' sales information for the past year. The owner threatened that if M&P does not provide this information, he will take his business elsewhere.

6. M&P is doing the audit of the HK Gallery, which buys and sells extravagant artwork. HK Gallery has proposed to pay for this years audit fee with a piece of artwork, as opposed to cash. The artwork, Rabbit in a Snowstorm will be provided to cover the cost of the fee based on a recent appraisal obtained by the Gallery.

7. M&P has been involved with providing non-assurance services to Melsons Meats (MM) since its inception. MM is owned and operated by Foggy's parents. Due to planned expansion, MM obtained a loan from the bank and now requires them to obtain a review engagement. Foggy has no direct financial interest in MM and has never been involved with the non-assurance services offered

8. M&P just became the auditors of Exotic Getaway Vacations (EGV). EGV has offered to provide all Matt and Foggy with a 60% discount on any of their vacation packages. This deal is not available to the general public.