Case 3.

The Baptist Foundation of

Arizona: Related Party
Transactions

Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
BFA Case
Relevant Technical Knowledge
PCAOB AS #12 – Paragraph #7
 “The auditor should obtain an understanding of
the company and its environment to understand
the events, conditions, and company activities
that might reasonably be expected to have a
significant effect on the risks of material
misstatement.”

2
BFA Case
Relevant Technical Knowledge
AU Section 334 – Paragraph #5
 “in determining the scope of work to be
performed with respect to possible transactions
with related parties, the auditor should obtain
an understanding of management
responsibilities and the relationship of each
component to the total entity. He should
consider controls over management activities,
and he should consider the business purpose
served by the various components of the entity.”

3
BFA Case
Relevant Technical Knowledge
PCAOB AS #9 – Paragraph #7
 “The nature and extent of planning
activities that are necessary depend on
the size and complexity of the company,
the auditor's previous experience with the
company, and changes in circumstances
that occur during the audit.”

4
Psychology Literature -
How to Best Acquire Knowledge
 Feature Repeated Case Experiences with
Feedback; and
 Teach Technical Concepts within Real-
Life Contexts
 Consider the following additional cases:
 The Fund of Funds: Related Party Transactions
 Enron: Understanding the Client’s Business and Industry
 Qwest: Understanding the Client’s Business and Industry

5
Epilogue - BFA
 BFA filed for Chapter 11 bankruptcy
protection

 BFA filed suit against Arthur

Andersen for negligence, causing
the accounting firm’s bankruptcy

6
Epilogue - BFA
 Arthur Anderson paid $217 million
to settle investor lawsuits

 Former president William Pierre

Crotts and chief legal counsel
Thomas Grabinski convicted of three
counts of fraud