Workshop 1

1119 Words Aug 28th, 2014 5 Pages
1. Why would the owners of Lakeside as well as the company’s banks require that an independent CPA firm perform the annual audit? The reason that there needs to be an independent auditor is so that they can remain unbiased. It could potentially make them less independent if they are auditing both Lakeside and the bank in which Lakeside is taking loans from. The auditing firm needs to stay independent in mind and appearance and this may be an issue when auditing both.

2. This case implies that no auditor with the firm of Abernethy and Chapman has an in-depth understanding of the consumer electronics industry. Is a CPA firm allowed to accept an engagement without having established the necessary expertise to oversee the audit? The first
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Lack of Expertise A skilled person should be hired to handle this audit.
Similar electronic companies have bankrupt recently Factors about the stability of the industry should be reviewed.
Sales and Returns The timing between sales and returns would need to be looked at to verify that false sales aren’t being recorded due to timing differences.
New Business strategies Look into the business strategy and the mission statement of company as well as speaking with upper management.
Misappropriation of assets Inventory would need to be audited
Unhappy with previous firm Rogers does not like the previous firm because he did not like the qualified status that they gave his company.
Unwillingness to fix the previous audit They would need to figure out why there was an unwillingness to fix the previous audit by speaking to upper management.

Case 1 - Exercise 2

King and Company

To: Benjamin M. Rogers
Lakeside Company
We have audited the accompanying balance sheet of 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
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