Premium Essay

Lakeside Audit Case

In:

Submitted By ckosh794
Words 2603
Pages 11
Audit Lakeside Case
October 13, 2015

1. An engagement letter is an essential aspect in establishing an understanding between the client and the audit firm. This documentation is required in order to identify the objective and scope of the audit, outline the specific responsibilities of management and the audit firm, identify inherent limitation of the audit, ascertain the applicable financial reporting framework, and the expected forms Engagement letters are necessary in settling disputes between auditor and management. When management signs the written engagement letter, they are entered into an executor contract with the auditor. In the engagement letter presented by Abernethy and Chapman, the audit firm clearly outlined the following responsibilities for Lakeside management: 1) The financial Statements 2) Establish and Maintain internal controls over financial reports 3) Identify and ensure compliance with laws and regulations applicable to its activities 4) Make all financial records and related information available to auditors 5) At the end of the engagement, providing a representation letter
Abernethy and Chapman outlined the following responsibilities for the auditor: 1) Audit financial statements for purpose of establishing an opinion on the financial position, results of operations, and cash flows in compliance with GAAP. 2) Obtain reasonable, not absolute, assurance that financial statements are free of material misstatements, in accordance with GAAS. 3) Obtain understanding of internal controls 4) Notify the audit committee of any reportable conditions 5) Prepare federal and state income tax returns for year ending December 31, 2009 6) Notify Lakeside if the estimate of $60,000 is significantly effected

2. The best source of information to determine an expected figure for cost of goods sold will

Similar Documents

Premium Essay

Lakeside Case Book

...The Lakeside Company Case Studies in Auditing Twelfth Edition John M. Trussel Dalton State College J. Douglas Frazer Millersville University Boston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto Delhi Mexico City Sao Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo Editor in Chief: Donna Battista Acquisitions Editor: Stephanie Wall Editorial Project Manager: Christina Rumbaugh Senior Managing Editor: Cynthia Zonneveld Production Project Manager: Carol O'Rourke Senior Operations Supervisor: Diane Peirano Printer/Binder: BindRite Graphics, Robbinsville Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on the appropriate page within text. Copyright © 2012, 2008, 2005, 2003 by Pearson Education, Inc., publishing Prentice Hall. All rights reserved. Manufactured in the United States of America. This publication is protected by Copyright, and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise. To obtain permission(s) to use material from this work, please submit a written request to Pearson Education, Inc., Permissions Department, One Lake Street, Upper Saddle River, New Jersey 07458, or you may fax your request to 201-236-3290...

Words: 48183 - Pages: 193

Premium Essay

Lakeside Company Case 6

...The Likeside Company: Auditing Cases AUDITING PROCEDURES AND AUDITING DOCUMENTATION: TESTING THE INVENTORY PURCHASING SYSTEM Art Heyman is employed as a staff auditor with the independent accounting firm of Abernethy and Chapman. For the first two weeks of December 2012, Heyman is asined to the Lakeside Company examination. During this period, he is to perform a number of testing procedures designed by Carole Mitchell, in-charge auditor on the engagement. Heyman recalled that several parts of the initial risk brainstorming involved inventory and merchandise purchases. At the present time, Heyman is beginning to analyze the transactions that occur in the client's merchandise procurement system. Within this testing, he is especially interested in determining the extent to which employees comply with control procedures while carrying out various required activities. This evaluation will influence the assessment of control risk and therefore, the nature, timing, and extent of substantive tests to be performed by the firm in this area. Lakeside leases a perpetual inventory record accounting system from DATA Processing System of Richmond, an outside service organization. The initial entries are made by the Controller's division of Lakeside, and on a weekly basis the transactions are uploaded through DATA Processing Systems' website. Reports are then generated, and one copy of the current inventory balances goes to Edward Thomas, who is responsible for acquiring merchandise, while...

Words: 2840 - Pages: 12

Premium Essay

Lakeside Case 3

...encounter in this audit with Lakeside Company, in order from one to seven, with one being the most important to the audit: 1. There appears to be a going concern for the industry that the Lakeside company is in. In 2005, Lakeside was in trouble, but has somewhat made a turnaround in 2010 and 2011; however, there are companies similar to Lakeside that are still going out of business. Within the last six months, and audio equipment company within the Richmond area went bankrupt. Also, while Roger’s distributorship business is growing, it seems that the remainder of his business is stagnant. In addition, it appears that Rogers has strayed from his original retail store operation into a new product market that may not be strong enough to support. With a failed product line in connecting with a weak market and continuous expansion on the basis of debt, this is a concern for the audit as an entity’s ability to remain a going concern and the potential for management fraud to inflate earnings and growth. 2. Rogers’ refusal to comply with his previous auditors request to report the companies sixth store with a write down in value to assess impairment, because Rogers believed no impairment existed. This argument led to the issue of a qualified opinion. The sixth store is located in an unsuccessful shopping center and has been underperforming. The company has not even come close to breaking-even and the failures of the shopping center make it appear uncertain if Lakeside could continue...

Words: 3295 - Pages: 14

Free Essay

Case 1-2

...Case 1 - Exercise 2 King and Company PRO FORMA AUDITOR'S REPORT To The Board of Directors of The Lakeside Company, We have audited the accompanying balance sheet of The LakeSide Company as of December 31, 2011, and the related statements of income, retained earnings, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our qualified audit opinion. We believe the value of Lakeside’s $186,000 investment in its latest store has been impaired based on guidelines established by the FASB. The store is adjacent...

Words: 401 - Pages: 2

Premium Essay

Lakeside Auditing

...(see Exhibit 9-7) while reviewing the invoices received by Lakeside subsequent to the end of 2012. Perform the necessary steps to test the warehouse account (#111-1) and document your procedures on an audit document similar to the one in Exhibit 9-4. Indicate and prepare on the audit document any proposed correcting entries that are needed to ensure fair presentation of this financial information. [Case 9-1.doc] Lakeside Company Tests of Buildings - Warehouse/Office December 31, 2012 Audit document No. W-3 Prepared by: KB Reviewed by: RG Reviewed by: JG Description | Amount | | Audit Procedures | Balance per books - Beg. of Year | $248,400 | |  | Additions: | | Invoice No. | | Grade land and pour foundation | 21,800 | 3145 | > # | October- Warehouse Construction | 16,900 | 3189 | > # | November- Warehouse Construction | 25,300 | 3214 | > # | Roofing Repair and Warehouse Construction | 14,600 | 3228 | > # | Disposals: | | Cash Rec. No. | | | | | | | | | | | | | | Balance per books - End of Year | | | | Proposed Adjustments: | | Adj. Entry No. | | Proposed Adjustment A | (3,500) | AJE 1 | | Proposed Adjustment B | 17,100 | AJE 2 | | Proposed Adjustment C | 1,600 | AJE 3 | | Proposed Adjustment D | 2,345 | AJE 4 | | Proposed Reclassification - E | (96,145) | AJE 5 | | | | | | Adjusted Balance | $248,400 | | | Audit Objectives: To verify the fair...

Words: 728 - Pages: 3

Premium Essay

Lakeside Company: Case 1

...Lakeside Auditing Case Study Case 1 Prepared by: January 27, 2011 1: An independent annual audit can provide credibility to information, and this could be very helpful for decision making. In this specific case, the owner of the Lakeside requires an independent CPA firm to perform an annual audit because the owner wants to show the public a “good-look” of its financial statements; since he would like to receive more capital by making his company public. In addition, good-looking financial statements of the company could provide good credit from the bank. To the lakeside company, the owner would like to provide audited financial statement to the bank to obtain the loan and receive the best possible interest rate. On the other hand, a decision by a bank loan officer about whether to make a loan to Lakeside Company and what rate of interest adequately compensates the bank for the level of risk assumed depends on an independent auditing report about lakeside’s financial reports. An auditing report about the company is reliable for the bank; it can significantly reduce the level of information risk. If the loan officer has assurance from the auditors that the company’s financial statements are prepared in accordance with GAAP, he or she will have more confidence in his or her assessment of business risk. By reducing information risk, the audit reduces the overall risk to the bank. 2: According to GAAS, the auditor must obtain a sufficient understanding of the entity and...

Words: 1450 - Pages: 6

Premium Essay

Observation of Physical Inventory

...primary reason auditors observe their client taking the physical inventory is to make sure the inventory reflected on the balance sheet actually exists and that the balance sheet includes all inventory owned by the company. This includes all raw materials, supplies, inventory in transit when using Free on Board (FOB) shipping point, inventory the company may have on consignment with another business, and inventory stored off the premises. Confirming the existence of inventory through your observations addresses the occurrence and completeness assertions as well. However, the auditor must always bear in mind that he is there not to participate in the actual counting of inventory but to rather observe. But before an auditor can pursue this audit procedure, he must first have to gather enough information about the company under audit’s inventory procedures. Aside from that, he must also identify inventory locations, have a tour of the business, and forbid movement of inventory. Observation of inventories is a generally accepted auditing procedure. The independent auditor who issues an opinion when he has not employed them must bear in mind that he has the burden of justifying the opinion expressed. A decision to observe less than...

Words: 702 - Pages: 3

Premium Essay

Lakeside Case Studies

...DISCUSSION QUESTIONS 1. Both the company’s bank and Lakeside owners would require an independent CPA firm to avoid any biases and upkeep the independence in auditing. 2. Under generally accepted auditing standards the audit is to be performed by a person or persons having adequate training which is interpreted to mean ‘technically qualified and experienced in those industries in which their clients are engaged” (Arens, Elder, Beasley, & Hogan, 2010, p. 35). This interpretation is based on recent court cases. With that information in mind this engagement should not be accepted. Care industry is significantly different than electronics so I would believe an audit in each industry would be considerably different. The auditor should certainly discuss the lack of expertise and possibly consider having a contract or new hired personnel to assist with such an audit. 3. Provided the employees truly have an understanding of how to achieve a profit sharing bonus, auditors may be concerned with the decision making of the employees. employees loyalty would be torn between providing the most independent unbiased information for the customer and the information that will provide their family with additional income. 4. A firm does face independence issues with auditing the output of systems the designed and installed regardless if the company is publicly traded or not. As the creator of the system the company may be biased as to how well the system works. The assumption that they created...

Words: 460 - Pages: 2

Premium Essay

Question Case Lakeside Company

...DISCUSSION 1. A company profit-sharing arrangement is a matter of auditor concern because it provides an incentive for employees to generate artificially high income figures. These individuals can receive direct financial benefits from the manipulation of reported earnings. This potential problem is even more of a concern in the Lakeside engagement because controls are weak and each store is geographically isolated from the oversight provided by the administrative offices. 2. This case describes the payroll system used by the Lakeside Company. Tests of controls are designed by the auditor to verify that specific control features identified as possible strengths are operating effectively. A sample of such tests would include the following: a. Compare the payroll records produced by Sarah Sweet to time tickets completed by hourly employees noting agreement as to hours worked; b. Verify that time tickets have been appropriately authorized; c. Recalculate salaried employees' monthly pay and compare to the payroll records; d. d. Recalculate salesmen's commissions and compare to payroll records; e. Recalculate payroll deductions based on government payroll tables and the data listed on the W-4 form filed by each employee. Compare these deductions to the company's payroll records; f. Recompute Lakeside's payroll taxes and compare to total reported balance; g. Verify mathematical accuracy of net wage figures (salary less deductions); h. Foot the...

Words: 1468 - Pages: 6

Premium Essay

Laeiv

...intention is to honor all legitimate requests. The deadline is necessary to allow sufficient time for a meaningful solution. Exceptional circumstances will also be considered at any time during the semester. Student Evaluation: Tests – 2 tests (mid-term and final- 100 pts each) 200 pts Cases: 6 total cases Group Cases: You are leader- 1@ 50 pts 50 pts You are group member- 2@25 pts 50 pts Individual Cases- 3 @ 33.33 pts 100 pts Total Points 400 pts Textbooks: Arens, Elder and , Auditing & Assurance Services: An Integrated Approach 15th ed., Prentice-Hall, 2014 Trussel, John M. and Frazer, J. Douglas The Lakeside Company: Case Studies in Auditing, 12th edition, Prentice-Hall , 2012 Student Learning Objectives- The student will be able to: 1. incorporate professional standards into case analyses and essay responses. 2. perform as a group leader and as a group member to organize work and present it in a professional manner. 3. develop solutions in light of both general business ethics and the AICPA Professional Code of Conduct. 4. demonstrate facility with basic audit steps and the documentation of such work. 5. demonstrate how...

Words: 819 - Pages: 4

Premium Essay

Auditing

...Case 4 - Exercise 4-2 (a) INTERNAL CONTROL - PRELIMINARY ANALYSIS CLIENT: SYSTEM: DATE: PREPARED BY: List each document found in this system, the number of copies, and whether it is prepared internally or externally. Answer each of the following questions. For each "No" answer, comment on whether an internal control weakness is indicated. |QUESTION |YES |NO |COMMENT | |(1) Is each document within this | | | | |system pre-numbered? | | | | |(2) Is the authority for completing| | | | |each document clearly delineated? | | | | |(3) Are all documents subsequently | | | | |reviewed by an independent party | | | | |within the company? | | |...

Words: 311 - Pages: 2

Premium Essay

Case 1 - Exercise 1 Abernethy and Chapman Fraud Risk Factors

...Case 1 - Exercise 1 Abernethy and Chapman Fraud Risk Factors Client: Lakeside Company Prepared by: Date: 09/12/2015 List the fraud risk factors that the CPA firm might encounter if they accept this audit engagement. Be sure to include a discussion of all items that will probably require special attention during the audit. For each of these fraud risk factors, indicate how the auditor should follow up on each potential problem if the engagement is accepted. Use the following format: |Fraud Risk Factors |Auditor Follow Up | |Managements have incentive to overstate income with cash |If the engagement is accepted, the auditor should perform testing | |bonuses tie to revenue. |and review in all areas within the balance sheet, income statement, | | |and other financial statements. | |Rogers has an incentive to hire Abernethy and Chapman as their|If the engagement is accepted, Abernethy and Chapman should consider| |auditor, because they audit the primary bank that he does |all independence and related party issues that may arise. By | |business with. This is a fraud risk factor because it may |checking the primary bank for Rogers, Abernethy and Chapman may not | |cause an independency issue with the auditor and client...

Words: 647 - Pages: 3

Premium Essay

De Havilland Case Study

...Case Study | De Havilland | | Executive Summary Financial analyst, Kim Tomar is a Financial Analyst at De Havilland Inc, a Canadian aircraft manufacturing company. Her responsibility within procurement is to evaluate bids and make recommendations to De Havilland Source Selection Board (SSB). She must make a recommendation on a supplier for flap shrouds and equipment bay doors. Since Dollard Plastics has failed to remain competitive by addressing the high pricing by unwilling to lower their price, she has solicited a number of competitive bids from 9 suppliers. We currently have sufficient supply of flaps and doors till the end of 1993, giving us approximately 17 months of inventory. Recent changes at de Havilland meant that we wanted to establish long term, cooperative contracts with suppliers. Normally 6-8 weeks were permitted for the vendors to return their completed bids. The value of the contract under consideration required the more senior management participated. The Bidder Selection Board (BSB) was comprised of representatives from finance and materiel areas. The BSB had four major objectives; review historical data in purchasing and cost patterns, financial data, quality and product support, secondly they produced an estimate on future purchasing trends for the part as well as new costs and finally they assembled a list of potential bidders. Once all bids were normalized they analyzed them, picked the likeliest candidate and a physical inspection was conducted...

Words: 1432 - Pages: 6

Free Essay

Lakeside 12e Case 6

...Case 6 - Exercise 2 Lakeside Company Inventory Purchases and Cash Disbursements Transactions December 31, 2006 Audit document No. N-3 Prepared by: AM 5/23/05 Reviewed by: Reviewed by: Date Vendor Purchase Requisition Number Receiving Report Number Invoice Number Check Number Audit Procedures 8/20/06 Cypress Products 6702 3918 711 3091         8/21/06 Cypress Products 6703 3919 802 3121    F     8/24/06 Cypress Products 6705 3920 991 3164    F     8/27/06 Cypress Products 6704 3921 1261 3203   E    H L 8/28/06 Cypress Products 6706 3922 1313 3251   D      9/2/06 Cypress Products 6707 3923 1406 3310      G   9/3/06 Cypress Products 6708 3924 1510 3345       I  9/7/06 Cypress Products 6710 3925 1616 3397    F     B Cypress Products 6709 3926 1691 3425 B        9/14/06 Cypress Products 6711 3927 1812 3451   C  C    9/16/06 Cypress Products 6712 3928 2072 3471    F   J  9/16/06 Cypress Products 6713 3929 2149 3510   E      Audit Objectives: To verify that all received merchandise was properly ordered and recorded and is for legitimate business purpose. To verify that expenses and assets are properly valued and classified. To verify that merchandise orders are handled properly and cash disbursements occur accurately for these orders. Scope: a) Population- All received merchandise. b) Sample- Judgmental. Selected 12 receipts of merchandise from...

Words: 906 - Pages: 4

Free Essay

Whistle Blowing, Business Ethics

...| Don’t Be Afraid to Whistle | | | Dmitry Lepenkov 1087106 708 Lakeside Circle Dr.Wheeling, IL 60090dmitrylep@gmail.com 224-595-3964 | 11/16/2010 | The recent subprime meltdown and the economic crisis that followed have wielded few successfully prosecuted cases of fraud in the financial sector. This can partly be explained by the complex nature of the financial instruments that were used, which are hard for regulators to decipher and for judges to interpret whether any fraud occurred. It seems that the missing ingredient in most prosecutions has been the absence of any forthcoming information from insiders. Whistle blowing has been almost nonexistent during the run up to the financial crisis and its aftermath. This is reflective of the negative stigma that is associated with whistle blowing in most businesses and corporations. Combined with a culture of silence that is prevalent in the finance and accounting industries this is not a big surprise. Federal regulators and congress have been encouraging whistleblowers to step up in recent years, however more must be done. Regulators must continue to improve protection and incentives for whistleblowers to come forward. In addition corporate culture must change in its negative view of whistle blowing. Most importantly though professionals, especially accountants must understand that they are serving the public interest and thus must step up and reveal any fraudulent or unethical activities that hurt the public. Whistle...

Words: 1762 - Pages: 8