ust For Laughs Inc. is an incorporated corporation under the laws of Ontario. It is also a successful and busy retail business owned by Jack and Jill Busybody and operated by them and their son Leroy. Jack and Jill Busybody are the sole directors of the corporation. The company has operated in the Danforth Avenue area of Toronto since 1997, supplying party favours to the local community. Misty Numbers is a chartered accountant and limited liability partner of Numbers & More LLP, a chartered accountancy firm. Ms. Numbers provided bookkeeping and accounting services for Just For Laughs Inc. from 2002 to 2012. Ms. Numbers and her firm was retained by Just For Laughs Inc. by way of a review engagement that was signed in 2002 and not updated. Misty Numbers was not retained to audit the company. In accordance with the review engagement, Misty Numbers prepared the companys financial statements and corporate tax returns on a yearly basis. The review engagement provided that neither Misty Numbers nor her firm was liable for any errors or omissions in the financial records of Just For Laughs Inc. The Busybodys had several staff who worked in the store, as well as their son Leroy who supervised the staff when the Busybodys travelled to Mexico for January to March every year to escape the Canadian winter. However, in addition to Leroy, the Busybodys relied on their staff, some of whom had worked for the company since 1997. In 2000, Just For Laughs Inc. was audited by the Canada Revenue Agency. It was revealed that the company was not recording and remitting the proper levels of retail sales tax for that year. A notice of assessment was issued, and Canada Revenue Agency found that the company owed $73,071 in unreported sales tax for the year. After that audit, the Busybodys re-trained their staff in how to record sales tax. It was discovered that when the staff collected a deposit on an order for party favours, they would not charge sales tax on the deposit. When the order was picked up by the customer, sales tax would be charged only on the balance that was owed, rather than on the total order. As part of the training, the Busybodys ensured their staff understood that they must record and charge sales tax on the total amount of the order. A further spot audit was conducted in 2001 by the Canada Revenue Agency which found that Just for Laughs Inc. was collecting and remitting sales tax properly. The main contact for Misty Numbers at Just for Laughs was Leroy Busybody, the Busybodys son who ran the company while his parents were away in Mexico each year. Leroy was never particularly good at math or financial information. He was an introvert who day-dreamed of becoming a murder mystery novelist and moving to a remote village in Mexico. Nevertheless, he was a dutiful son who managed his parents party business out of loyalty, and relied on the staff to know how to process orders. Leroy and Misty became quite good friends often sharing meals together for which.

1. ust For Laughs Inc. is an incorporated corporation under the laws of Ontario. It is also a
successful and busy retail business owned by Jack and Jill Busybody and operated by them and
their son Leroy. Jack and Jill Busybody are the sole directors of the corporation. The company
has operated in the Danforth Avenue area of Toronto since 1997, supplying party favours to the
local community. Misty Numbers is a chartered accountant and limited liability partner of
Numbers & More LLP, a chartered accountancy firm. Ms. Numbers provided bookkeeping and
accounting services for Just For Laughs Inc. from 2002 to 2012. Ms. Numbers and her firm was
retained by Just For Laughs Inc. by way of a review engagement that was signed in 2002 and not
updated. Misty Numbers was not retained to audit the company. In accordance with the review
engagement, Misty Numbers prepared the companys financial statements and corporate tax
returns on a yearly basis. The review engagement provided that neither Misty Numbers nor her
firm was liable for any errors or omissions in the financial records of Just For Laughs Inc. The
Busybodys had several staff who worked in the store, as well as their son Leroy who supervised
the staff when the Busybodys travelled to Mexico for January to March every year to escape the
Canadian winter. However, in addition to Leroy, the Busybodys relied on their staff, some of
whom had worked for the company since 1997. In 2000, Just For Laughs Inc. was audited by the
Canada Revenue Agency. It was revealed that the company was not recording and remitting the
proper levels of retail sales tax for that year. A notice of assessment was issued, and Canada
Revenue Agency found that the company owed $73,071 in unreported sales tax for the year.
After that audit, the Busybodys re-trained their staff in how to record sales tax. It was discovered
that when the staff collected a deposit on an order for party favours, they would not charge sales
tax on the deposit. When the order was picked up by the customer, sales tax would be charged
only on the balance that was owed, rather than on the total order. As part of the training, the
Busybodys ensured their staff understood that they must record and charge sales tax on the total
amount of the order. A further spot audit was conducted in 2001 by the Canada Revenue Agency
which found that Just for Laughs Inc. was collecting and remitting sales tax properly. The main
contact for Misty Numbers at Just for Laughs was Leroy Busybody, the Busybodys son who ran
the company while his parents were away in Mexico each year. Leroy was never particularly
good at math or financial information. He was an introvert who day-dreamed of becoming a
murder mystery novelist and moving to a remote village in Mexico. Nevertheless, he was a
dutiful son who managed his parents party business out of loyalty, and relied on the staff to know
how to process orders. Leroy and Misty became quite good friends often sharing meals together
for which Leroy would always pay. Misty and Leroy eventually became romantically involved,
but the Busybodys continued to use Mistys professional services out of convenience. Jack and
Jill Busybody grew to rely on Leroy managing the financial side of the business, particularly

2. since they were advancing in age and they hoped that Leroy would take over Just For Laughs
Inc. when they chose to retire to Mexico permanently. Leroy was not named as a Director for the
corporation. The Busybodys had not gotten around to the paperwork to add him as a Director on
the corporate records. Misty Numbers did the monthly book-keeping services for Just for
Laughs. She would obtain monthly summaries of financial data from daily cash reports from
Leroy Busybody. At month end, they would schedule a dinner date where Leroy would provide
the companys financial records and they would carry on to an evening of dinner and discussing
the latest murder mysteries. Ms. Numbers staff would post the financial information to the sales
journal and general ledger. Misty would then run the numbers on a monthly basis and do the tax
returns on an annual basis. She happily conducted this analysis because of her relationship with
Leroy, even though her company had grown to have more lucrative customers. She did notice
that Leroy had not been monitoring staff as much as he usually did, but she put her concern aside
given that the Busybodys often trusted their son with the financial details of the company and he
was so much fun to hang out with. When preparing the financial statements for the company,
Misty Numbers reviewed whether the sales tax shown on the companys financial records was the
same amount that was remitted to the Ministry of Revenue. She checked to determine if the same
amount that was charged to the customer was remitted. In 2012, the Canada Revenue Agency
conducted a multi-year audit of Just for Laughs Inc. and assessed an underpayment of retail sales
tax in the amount of $1.7million dollars. Jack and Jill Busybody were devastated. CRAs
assessment decimated their retirement savings and they had to sell their condo in Mexico in
order to pay CRA and pay for their high-priced lawyer. As a result, the Busybodys put aside their
sons romantic interest in Misty Numbers. They instructed their lawyer to commence a lawsuit
against Misty Numbers and her firm and sue her for professional negligence. Misty Numbers
was surprised to be served with a lawsuit. She felt that she was not retained as a professional but
that she was a family friend. Nevertheless, she retained a lawyer to defend her against the
Busybodys.