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2012 Fall Midterm - MGT 393/RSM 225 FALL 2012 MIDTERM...

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Page 1 of 3 MGT 393/RSM 225 – FALL 2012 - MIDTERM general guide this is not intended to be a sample response but rather a general guide to issues that could be identified and discussed. NOT PROOFREAD QUESTION ONE (50 marks) (45 minutes) You, Bea Calm, B.Com., CA-IFA, are employed in the forensic accounting department of the chartered accounting firm, Sparrow & Swann, LLP (“S&S”). S&S have a new client, Amy Fowler. The firm was retained by Amy’s divorce lawyer. By way of background, Amy Fowler married Sheldon Cooper in 1998. The two met while each was completing a M. Sc.Eng. (civil engineering) degree at UT. In 2003, the two formed a partnership, Cooper, Fowler Consulting Engineers (“CF”). The partnership provided civil engineering consulting to small municipalities (eg. roads, bridges). In 2008, the two decided to also form a corporation that focussed on building demolition. For tax planning reasons, Amy received 45 common shares, her mother, Bernadette Fowler, received 10 common shares and Sheldon received 45 common shares. There are no other shareholders. The corporation was called Big Bang Limited (“BBL”). BBL uses explosives to demolish old buildings in a cost effective manner. (Paragraph provides background we note in particular that a partnership exists as between Amy and Sheldon; also that they are also shareholders of a corporation BBL – and Sheldon is a minority shareholder (if Amy and Bernadette work together) At the time Amy and Sheldon married, the two signed a “marriage contract” that provided that upon separation or divorce, they would not be able to make an equalization claim on the other. Effectively the agreement provides that whatever assets they have will not be equally divided between them. Amy is thinking about asking Sheldon for a divorce. This will come as a surprise to Sheldon. Amy is a “planner” and has consulted with a divorce lawyer to see what could be done in advance of separation to help ensure she has maximum assets at the time of the split. The divorce lawyer has provided a number of suggestions that she should follow. Amy and her lawyer have now consulted with your accounting firm to get advice as to how to “hide” transactions – to make it more difficult for Sheldon to determine what happened. The accounting firm partner, Jack Sparrow, has some concern about the legality/implications of some of the business entity related advice provided by the lawyer. Jack has asked you Bea, to prepare a detailed memorandum that analyzes the legal issues associated with the advice provided and provides preliminary conclusions on the actions taken and if it will in fact meet Amy’s objectives. Jack will likely decline the actual engagement, as he is concerned about the ethics involved. (in this paragraph we see Amy’s objective (or at least her lawyers) appear to be to divert/get as many assets as she possibly can (both directly and indirectly). The fact that Jack plans to decline indicates he questions the ethics of what is being proposed – although the role of Bea Calm is to actually discuss the logistics.
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