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Draw a conclusion about each ethical issue

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Question - Vera Wang, Inc. (VWI) is a private company that owns five niche clothing stores in North Carolina. VWI went from two stores to five stores in the last three years, and it plans continued growth. Vera and Kenneth Wang own the majority of the shares in VWI. Vera is the chairman of the board of directors of VWI and CEO, and Kenneth is a director as well as the CFO. Shares not owned by Kenneth and Vera are owned by friends and family who helped the Wangs get started. Vera started the company with one store in Charlotte, NC. To date, they have funded growth from an inheritance and investments from a few friends.

Wang's accounting firm, Lawrence & Smithsonian LLP, has prepared tax returns for the company, as well as for the Wang family, for the last 10 years. Lawrence & Smithsonian is a CPA firm with 55 professionals, which performs audit and tax services for a number of clients. Jessica Smithsonian, a tax partner in the CPA firm, is a long-time friend of Vera and owns 5% of VWI.

In September 2024, Vera opens a conversation with Jessica about upcoming expansion and the plan to open three to five more stores. Vera has learned this will mean taking on significant debt to fund the growth. Every lender that Vera has talked with has been impressed with the growth to date with equity, but the lenders will require an annual audit. Vera asks Jessica if her firm can perform the annual audit.

The expansion is still in the early planning stages, and Vera agrees to purchase Jessica's 5% stake in VWI. Lawrence & Smithsonian plans to continue to prepare tax returns for VWI and the Wang family.

Vera expects that the first audited financial statements that VWI will need will be for the year ended December 31, 2025. Jessica consults with the audit partner, Jennifer Lawrence, regarding the possibility of VWI as an audit client.

Answer the following questions:

1. Jennifer Lawrence, Lawrence & Smithsonian audit partner, has some concerns about accepting the audit engagement. Identify and briefly explain at least two potential ethical issues that may be of concern.

2. Describe the relevant information from the case for each ethical issue identified.

3. Analyze the relevant information for each ethical issue and evaluate the alternatives and any follow-up information that might be needed.

4. Draw a conclusion about each ethical issue and explain your reasoning. Cite appropriate references from the AICPA Code of Professional Conduct.

5. Based on your analysis, would you accept the audit engagement? Why or why not?

Reference no: EM133113246

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