7. You are the accountant for a very successful import brokerage business. Custo

Question

7. You are the accountant for a very successful import brokerage business. Customer goodwill is its largest asset. The three co-owners wish to enter into a buy–sell agreement that will require the surviving co-owners to purchase a departed partner’s owner- ship interest upon the departed partner’s withdrawal due to retirement, death, or permanent disability. One of the co-owners is 60 years old and the other two co-owners are about 40 years old. All three co-owners have retained you to develop a buyout formula that will result in the withdrawing partner receiving a fair price from the surviving co-owners. The formula will apply equally to all owners, and no partner has any current plans to withdraw from the partnership.

a. Do you have a conflict of interest? Explain?

b. Is there a remedy for this conflict of interest? Explain?

c. Are you obligated to make disclosures to these partners to continue to perform this engagement? Explain?

Explanation / Answer

a. Do you have a conflict of interest? Explain?

The conflict of interest might arise because the two young partners might force or coerce the accountant to make a deal or an agreement benefitting the two young partners and not the older one. They can offer material benefits or quick promotions for making an agreement favorable to them.

b. Is there a remedy for this conflict of interest? Explain?

Yes, there is a remedy. The accountant can politely cite the conflict of interest or may disassociate himself from the job. The company can hire an eternal accountant to maintain the fairness of the deal.

c. Are you obligated to make disclosures to these partners to continue to perform this engagement? Explain?

Yes, the accountant is obligated to disclose the conflict of interest disclosures to these partners before performing the engagement.

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