Lakeside Case 2

7160 Words29 Pages
February 7, 2013

Abernathy and Chapman
Wallace Andrews Lakeside
1235 Sentry Drive
Richmond, Virginia 66266

Dear Mr. Wallace,

We have researched the issues that were discussed regarding the possibility of Lakeside Company going public and the ramifications this action would have on their desirability as a client. We have also analyzed Lakeside Company’s financial statements to evaluate the possibility of misstatements. Attached, you will find our report discussing these issues.

Please contact us with any further questions.


Mariana Welch

Cc: Bob Zimmerman

Case Two: New Clients, Legal Liability and Materiality

Table of Contents Executive Summary 4 Discussion Questions 5 Apply Your Research
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Auditors are precluded from discussing confidential information obtained in the course of an engagement unless the client consents to the disclosure. Abernethy and Chapman must therefore have Rodgers permission to have this communication. If Rogers prohibits Abernethy and Chapman from meeting with the predecessor auditor, even after it was fully explained the importance and necessity of the procedure, then the CPA firm should reject the new engagement. (PCAOB)

3. If Abernethy had learned from King that Roger or his staff lacked integrity, what action should have then been followed and why?

If Abernethy learned from King and Company that Roger or his staff lacked integrity, then this would certainly help Abernethy evaluate whether or not they should accept the new client engagement. In this particular case Abernethy and Chapman should keep in mind that the predecessor has just been terminated from the Lakeside audit and that some bad feelings may exist between the predecessor and the client. It is therefore, important to seek out additional references from other sources other than just King and Company before making a final decision. Given that there are potential legal ramifications faced by independent auditors they should not accept any client in which the management or staff has integrity issues.

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