Lakeside Essay

Discussion Questions1. The owners of Lakeside as well as the comp whatevers bank may require that an independent certified public accountant firm perform an annual study because the CPA firm could have an independence issue. The CPA firm in that Lakeside wants to take aim is besides the tenders for Lakesides master(prenominal) fiscal bank. The bank is a main user of the report put out by Lakesides meeter and in this case would be that banks hearer too. The conjunction is too goal for the CPA firm to pick up this client, it would be against the ethically code.2. Abernethy and Chapman do not have in-depth under(a)standing of the consumer electronics industry that Lakeside is a part of, therefore it would be an unethical and against the rules of remove. Rule 201 in General Standards part 1 says, undertake only those professional services that the member derriere reasonably expect to complete with professional competence. As stated if the firm does not have a member or experie nce in the field of phone line the auditing firm should refrain from taking on that client. Could an auditing firm get by in auditing the books of an electronic company when their specialty is car dealerships, in all likelihood but as an auditing firm that has never done the audits for a client in this field it is unknown the way business is handled and the right protocol in that field. thither is an ethical obligation for the firm to discuss the expertise guideed for them intimately the industry the client is in.3. Profit-sharing bonuses seem like an easy and nice incentive for the employee by the employer but they bring along a lot of drawbacks and as an auditing firm open up a door for a red flag. There are very strict rules when adopting a profit-share policy that must be approved by the IRS and meet their guidelines. There is also a limit to the measuring rod that employers can contribute to the plans. These guidelines are changing from year to yearand it would be somethi ng else Abernethy and Chapman would have to keep up on as well as make out sure Rogers is doing the right thing. There is a lot of area for role player here and as an auditing firm a section that would need to be under close watch.4. If Rogers wanted Abernethy and Chapman to assist them in developing systems it would depend on a few factors. Abernethy and Chapman would be able to help develop the systems if Lakeside stays a private company. If Lakeside is a publicly traded company Abernethy and Chapman would have an independence issue if it was both the auditor and helping to develop systems for output.5. If Andrews was assigned to escort the headquarters/warehouse some of the things a tour of the clients facilities is helpful in obtaining a better understanding of the clients business operations because operations because it provides an opportunity to observe operations firsthand and to meet key personnel. By viewing the facility you can view assets and interpret write up data related such as inventory and some of the factory equipment.6. There are a few reasons that Lakeside would not want to hire a CPA firm that has clients in the electronics industry, one of them be if Lakeside would not get as good of a report as the other electronics, it is very each for stakeholders and investors to see which company is better. Second, Lakeside may feel the auditor isnt necessarily on their side, even though as an auditor we need to stay neutral and that our obligation is to the stakeholder in the company.List the fraud luck factors that the CPA firm might encounter if they acceptthis 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 formal Fraud Risk FactorsAuditor Follow UpMaterial misstatement that existed on reporting historical cos t on the new building. Approach this subject right away and speaking with the previous auditors for what they experienced on this issue. Rogers Corporation to construct the latest facility for Lakeside This issue needs more information and legal terms on whether or not this is allowable. The audit option that was rendered on the books for year ending in 2011 With Rogers refusing to write down the reported assess of the property can cause some confliction between any auditor and owner. Talking to Rogers and the previous auditor is the best way to get to the bottom of this issue and see who is at fault. Not as much of a fraud but Rogers growth plan could run the company into the ground Because Rogers was annoyed with the last firm because of stifle to his growth plans, as an auditing firm we need to figure out what is best for the company and determine whether his attitude towards not changing his growth plan would be an issue. Why does more capital from being a publicly traded compa ny help the company out There is nothing in the description that would give us as the firm an extension that having more capital will improve the position of the company. Growing and building more stores does not fix the problem. Coming to a determination on declension options will be crucial before taking this client on.The threat of closing the newer building near the strip mall. This brings up the factor that if the company is close to closing a store before they are even our client, their future looks slim. If this is the case do we want to have a audit report of we imagine this business will fail in a few years Thats not good business all around Rogers uncertainty about surroundingsThe fact that there were two electronic businesses that went out of business in the same town as him and he didnt know the reason, makes me a littleworried if he isnt going to pay attention to his surrounds like this. I would approach this subject with our partners and Rogers before taking on this client. Does auditing them and also being the auditor of the bank they finance through become an independence problem? There would be an independence issue here that would need to any be resolved or conclude in not being able to have Lakeside as a client Abernethy and Chapmans soreness in the field of electronics Abernethy and Chapman should discuss with Lakeside their inexperience and explain to them how they plan on gaining experienceProfit-Sharing BonusesProfit-Sharing bonuses bring up a huge fraud risk and Abernethy and Chapman need to make sure they deal with this issue and either get Rogers to cut the plan or work out in great level how it will work.King and CompanyCertified Public AccountantsRichmond, VirginiaINDEPENENT AUDITORS REPORTTo the StockholdersLakeside CompanyWe have audited the financial statements of Lakeside Company as of December 31, 2011 and also have observed the operations and internal controls of Lakeside.Managements Responsibility for the Financial State mentsManagement is responsible for the preparation and fair intro of the financial statements in compliance with U.S. GAAP. This includes the design, implementation, and maintenance of internal control pertaining to the preparation and fair presentation of financial statements that are free from material misstatement whether due to fraud or error.Auditors ResponsibilityOur responsibility is to give an opinion on Lakesides financial statements found on our audits. We must conduct audits in accordance with auditing standards generally accepted. Those standards require that we plan and perform audits to reasonable obtain sufficient evidence that gives us the best assurance about whether the financial statements are free from material misstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. All these procedures depend on the auditors judgment. We believe that the audit evidence we have obtained is suff icient and appropriate to provide a basis for our opinion.Lakeside Company has chosen not to value their latest store with accordance to guidelines established by the FASB. We strongly believe that the value of Lakesides $186,000 investment in their sixth store should be impaired. The continuing failure of the shopping center makes the fate of the Lakeside store appear uncertain to us. The president of Lakeside, Benjamin Rogers, continued to report this asset based on historical cost, and not fair value. Because of this, we feel that a material misstatement exists and thus, we issued a qualified opinion.OpinionIn our opinion, except for the material misstatement with this investment, as mentioned in the preceding paragraph, the financial statements of Lakeside Company appear to be fairly stated with accordance to GAAP. Lakesides operations and cash flows seem to be in conformity with GAAP for the year ended December 31, 2011.