Three arrangements at a composite school-bus contractor each threaten the audit firm's independence differently, and the AC504 Unit 4 scenario response fixes each before the report is dated. Searches like "ac 504 unit 4 assignment example", "ac504 unit 4 sample" and "ac504 unit 4 example" land here.
What a finished AC504 Unit 4 independence scenario response looks like
Around five pages, arranged as three short analyses under one framework. The engagement facts open it: a family-owned contractor running [240] school buses under district contracts, audited because its bank requires it, with the firm also drafting the statements and proposing adjusting entries each year. Each arrangement then gets its own section, set out the same way: the facts, the threat category from the AICPA's conceptual framework, the specific interpretation that governs, whether safeguards can reduce the threat to an acceptable level, and the decision. The unpaid fee, the nonattest drafting service and the senior's brother are handled in that order, from the one the Code settles most bluntly to the one that needs judgment. A one-paragraph note states how the SEC's stricter rules would treat the drafting service for a public company.
How a AC504 Unit 4 example is structured
Organizing by arrangement rather than by threat keeps each decision traceable to its facts. The unpaid fee section is brief because the interpretation is direct: when the current report is issued, fees for services rendered more than a year before the report date must not remain unpaid, so the firm either collects before dating the report or does not issue it. Preparing statements is a permitted nonattest service only if the client assumes management responsibility through a designated person with suitable skill, knowledge or experience, and the office manager named for that role could not explain the entries she approved. That is treated as a self-review and management participation threat, and a qualified designee is required. The brother's section turns on whether fleet maintenance accounting is a key position, answers yes because it supports a material expense, and removes the senior from the team.
A bus contractor and its bank
[240] buses on district contracts, audited statements required by the lender, and a firm that also drafts those statements each year.
Fourteen months unpaid
The unpaid fee interpretation applied: last year's [$41,500] collected before this year's report is dated, or no report issues.
Drafting what the firm audits
Statement preparation allowed only with a client designee of suitable skill, knowledge or experience; the office manager named could not explain the entries.
The senior's brother
Fleet maintenance accounting judged a key position because it supports a material expense, so the senior leaves the engagement team.
If the client were public
SEC rules would bar the firm from preparing an audit client's statements outright, a line stated once since this client is private.
Where marks go in AC504 Unit 4
Responses that name independence as a principle and then declare the engagement compromised, without separating the three arrangements, miss the unit's method. Each needs its own threat, its own interpretation and its own decision. Treating the unpaid fee as a matter of safeguards is a frequent error, since the interpretation leaves little room: the fee is paid or the report waits. The drafting service draws the most varied answers, and credit follows papers that test the designee's actual capability rather than accepting a name on a form. Declaring the brother's role key, or not key, without examining what the job controls costs precision. Citing SEC rules as though they governed a private client confuses two regimes. A conclusion that ends the engagement when fixes exist overshoots.
Get a AC504 Unit 4 example written to your instructions
Set out the relationships and fee arrangements the Unit 4 prompt describes, and attach the rubric. Each arrangement is analyzed separately, with its threat, the governing interpretation, available safeguards and a decision, plus a public-company note if useful, returned inside 24-48h. Your opening request is not billed, and the contractor and firm are composites.
AC504 Unit 4 questions, answered
Can a firm audit statements it helped prepare?
Under the AICPA Code, a private-company auditor may prepare the statements as a nonattest service if the client designates someone with suitable skill, knowledge or experience to oversee it, accepts responsibility for the results and makes the management decisions. The AC504 example finds that condition unmet here and fixes it. For public companies, SEC rules prohibit the service.
Why can't the firm just note the unpaid fee and move on?
Because the AICPA interpretation treats independence as impaired if, when the current report is issued, the client still owes for professional services provided more than one year before that report's date. A disclosure or a payment plan does not cure it. The example therefore makes collection a condition of dating the report, and says what happens if the client cannot pay.
Does the brother's promotion end the engagement?
No. The impairment attaches to an engagement team member with a close relative in a key position, so taking the senior off this audit resolves it, with the change documented and his further involvement ruled out. The AC504 example also checks whether the brother's role is truly key, because that finding decides whether any action is required at all.