Does graywall satisfy the independence rule to audit

Reference no: EM131421362

Assignment: Fiduciary Relationships

Write a response to each of the following questions between 260 to 350 words from Ethics in Accounting: A Decision-Making Approach.

Cite your research from the text and any additional professional or regulatory guidance and format your response consistent with APA guidelines.

Exercise 1

Graywall, CPA, serves as a trustee of the CureCancerNow Foundation, a charitable foundation that is dedicated to cancer research activities. For years, he has been the loyal friend and advisor to Adolpho Rabin. In fact, Adolpho made a fortune as the founder of an apparel manufacturing corporation. After his mother died of cancer, Adolpho Rabin asked Graywall for advice about how he could meaningfully preserve the memory of his mother. Shortly after attending the funeral for Adolpho's mother, Graywall persuaded Adolpho to designate the CureCancerNow Foundation as one of several beneficiaries of his will, along with Adolpho's grown children and two grandchildren. Adolpho's will also provides that the executor may redirect more money to Adolpho's "offspring and their offspring if needed to facilitate their medical care, education, or critical life needs." Adolpho also designated Graywall to be the executor of his estate.

a. Does Graywall satisfy the Independence Rule to audit the charitable foundation?

b. Did Graywall have a conflict of interest when he advised Adolpho to designate the CureCancerNow Foundation as one of his estate beneficiaries?

c. Does Graywall have a conflict of interest in serving as the executor of Adolpho's estate?

Your client is the founder of Epsilonia, a highly successful, closely held business. Your client never married or had children, but he did have three sisters, all of whom were active in the company's management and served on the company's Board of Directors. Epsilonia was started over 70 years ago. Prior to 1960, your client was the sole stockholder of Epsilonia. As the company's value grew rapidly, your client became concerned about income taxes and estate taxes. This concern was common in 1960 because the top income tax rate was 91%, and the top estate and gift tax was likewise extremely high. Long-term capital gains tax rates were 25%.

Exercise 2

In 1960, your client retained 40% of Epsilonia stock for himself and placed the remaining 60% of the stock into trust for the benefit of his sisters and their children.

trust said, in relevant part: "The split-interest trust annually shall distribute trust income to each sister during her life. Upon each sister's death, the principal attributable to her share of the trust shall be distributed in kind to her then-living children." Your client remained the sole trustee of the trust during his lifetime. Upon the recent death of your client, his sisters became cotrustees. Due to the generosity of your client to his sisters during his lifetime, each sister is independently wealthy and self-sufficient financially.

Epsilonia stock historically has paid a dividend distribution rate equal to only .007% on market value. Two of the three sisters do not mind that Epsilonia stock pays such a low dividend because the stock has generated substantial capital appreciation, making each sister's children "ridiculously rich." In fact, the Epsilonia stock has appreciated at more than twice the rate of the overall stock market from 1960 to present. However, one of the sisters would like to receive more income for herself and has pleaded with her sisters, as cotrustees, to shift the trust's assets into a High-Income Stock Index Fund that will generate significant dividend income. The other sisters have refused, however. As a result, the aggrieved sister has filed a lawsuit, claiming that, as the income beneficiary of the trust, she is receiving an inadequate amount of money. She contends that:

• The cotrustees have breached their fiduciary duty of reasonable care by failing to adequately diversify the trust.

• The cotrustees have breached their fiduciary duty of impartiality. This duty requires trustees to establish investment policies that give "due regard" to the interests of both the income beneficiary and the principal beneficiary in a split interest trust.

a. Did the three sisters, as cotrustees, unethically gamble with the trust's wealth by maintaining a concentrated investment ownership position only in Epsilonia stock?

b. In this situation, was it unethical for the cotrustees to keep all the trust's assets invested in a stock that generated such a low dividend that the trust's income beneficiaries barely received any income?

Reference no: EM131421362

Questions Cloud

Are you personally obligated to abide by aicpas statement : Are you personally obligated to abide by the AICPA's Statement of Standards for Tax Services, even though you do not work in public practice?

Motorcycle safely lands on the flatbed of the truck : Fortunately, the motorcycle safely lands on the flatbed of the truck. What would the outcome have been if the trail was 12 meters above the road, but all other parameters remain the same?

Distance between them is decreased by eight : Find the change in the force of gravity between two planets when the distance between them is decreased by eight.

Acceleration due to gravity : A civil engineer is to design a road curve at a 194 m radius to carry racing cars traveling at 21 m/s. µ = 0.11 At what angle θ should it be banked for maximum control of the racing car? The coefficient of friction of the surface is 0.11 and the ..

Does graywall satisfy the independence rule to audit : Does Graywall satisfy the Independence Rule to audit the charitable foundation? Did Graywall have a conflict of interest when he advised Adolpho to designate the CureCancerNow Foundation as one of his estate beneficiaries?

Discussion of the sources of error : "A summary of results, an evaluation of the results, a discussion of the sources of error, and a discussion of how well the objectives of the lab were met. (Did you find what you were looking for?

Identify the audience and provide a preliminary thesis : Read through the list of research topics (located in the Appendix) on which to write a research paper. Select three (3) topics that interest you most and identify two (2) credible sources for each topic. Note: This is one (1) of several parts that..

Compute sega-venus’s conservatism ratio : Explain why the conservatism ratio provides a measure of the extent to which a company's financial accounting methods are conservative, and provide examples of accounting treatments that may increase or decrease the ratio.

Expression for the magnitude of the acceleration : Write down an expression for the magnitude of the acceleration of a car accelerating under the influence of gravity down a hill at a given angle of steepness.

User Account

All Pages