Examen

The Lakeside Company-Auditing Cases SOLUTIONS MANUAL 11e.

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The Lakeside Company: Auditing Cases

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American Intercontinental University (AIU)

The Lakeside Company-Auditing Cases SOLUTIONS MANUAL 11e. INTRODUCTORY CASE SUGGESTED ANSWERS TO DISCUSSION QUESTIONS (1) The staff auditor performs many of the detailed audit procedures, such as preparing and controlling accounts receivable confirmations. In general the work of the staff audi...

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Publié le 17 août 2022
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The Lakeside Company: Auditing Cases

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The Lakeside Company:
Auditing Cases
SOLUTIONS MANUAL 11e
Table of Contents

John M. Trussel and J. Douglas Frazer

A Not on Ethics, Fraud and Sox Questions
2

A Note on Research Assignments
4

Introductory Case
6

Case 1 13

Case 2 21

Case 3 29

Case 4 39

Case 5 51

Case 6 67

Case 7 74

Case 8 83

Case 9 92

Case 10 100

Case 11 105

Case 12 115

Case 13 127

1

, A NOTE ON ETHICS, FRAUD, AND SOX QUESTIONS

The Lakeside Company: Auditing Cases, 11th edition, has been updated
in light of the accounting scandals of the early 2000s and the passage of
the Sarbanes-Oxley Act of 2002, and the renewed interest in ethics
within the accounting and auditing profession.

Ethics questions are now specifically identified with an ethics logo. The
ethics questions are often open ended, and this solutions manual does
not try to give exact answers to these questions. Rather, we intend to
give some ideas for classroom discussion, and to help with student
research on these questions.

Fraud questions are now specifically identified with a fraud triangle

The introduction of Sarbanes-Oxley issues has been accomplished in two
ways. First, case content has been altered to include Lakeside’s
consideration of financing expansio n through an initial public offering,
and the resulting impact such a decision would have on Lakeside and on
Abernathy and Chapman, CPAs. Second, the discussion questions and
exercises have been expanded to include consideration of Sarbanes-
Oxley and new auditing and independence standards, both by adding a
section in the end-of-chapter material and by reference in the other
questions where appropriate. The following list includes all the questions
with the location of the question and a brief learning objective.

(Intr-1) The case states that the firm of Abernethy and Chapman is
considering the acceptance of clients that are publicly traded.
What specific steps would the firm have to take before they could
accept an audit client that is publicly traded? Objective – Initial
PCAOB registration.

(1-1) According to this case, the Lakeside Company is considering a
public offering of stock to finance its growth. What steps would the
Lakeside Company have to take before issuing stock to the public?
In particular, how would the p rovisions of the Sarbanes-Oxley Act
impact this decision? How does the possible public sale of stocks
impact the Lakeside Company financial reporting requirements?
Objective – Public reporting requirements in the PCAOB context.

(1-2) Explain how the acceptance of a public company would impact a
CPA firm. In particular, how would Roger's decision about offering
stock to the public impact Abernethy and Chapman's decision of
whether or not to accept Lakeside as a client? Objective – Client

1

, acceptance in the PCAOB and in this case the effect of an initial
public client.

(2-1) According t o Case 1, the Lakeside Company is considering a
public offering of stock to finance its growth. The firm of Abernethy
and Chapman does not presently have any audit clients that are
public companies. How would the Sarbanes-Oxley Act impact the
firm's decision to accept such a company as an audit client? What
additional requirements are there for a CPA firm that is registered
to practice before the SEC compared with a CPA firm that is not
registered? Is the firm of Abernethy and Chapman capable of
meeting these standards? Objective- Client acceptance in general
compared to public clients.

(2-2) According to Case 1, the Lakeside Company is considering a public
offering of stock to finance its growth. What additional
requirements are there for a publicly traded company compared
with a nonpublic company? What issues have arisen so far in the
case that should be addressed as Lakeside considers going public?
Objective- Lakeside issues related to public reporting
requirements.

(4-1) Lakeside’s consideration of an initial public offering would require
significant changes in Lakeside’s organizational structure and
governance, including the structure and operation of the board of
directors and the need to assess the functioning of the company's
internal control systems. Discuss these topics and make specific
recommendations to Lakeside. Objective – Corporate governance
and internal control in the public reporting context.

(4-2) Discuss the assessment of control risk for audit clients that are
public companies. If Lakeside were to become a public company,
what impact would that have on Abernethy and Chapman's
assessment of Lakeside's control risk and the evaluation of
internal control? Objective – Internal control both in the public
reporting context. Section 404 audits.

(5-1) As noted in Case 1, Lakeside in considering the issuance of stock
to the public. Write a report discussing tests of controls for clients
that are public companies compared with those that are not public
companies. If Lakeside were to become a public company, what
impact would that have on Abernethy and Chapman's tests of
controls? Objective – Comparison of internal auditing in the
general case and in the public case.

2

, (7-1) The case assumes that tests of controls have been completed and
substantive testing in the payroll area has commenced. During the
internal control evaluation and testing what options are available to the
CPA to document problems and communicate their effect? Write a
sample of a “material weakness” in the area of payroll internal control that
would be included in the auditor's report. Objective – Material
weakness example.

(9-1) The Sarbanes-Oxley legislation raised the expectations on the
oversight provided by the board of directors and established the
role of the “financial expert.” How would these expanded
responsibilities affect the financial accounting questions that
played a significant part in Case 9? Objective – The role of the
audit committee and the financial expert.

(9-2) Under Sarbanes-Oxley, management can no longer claim to be
unaware of its financial reporting system. In this case, how do the
answers provided by Rogers relate to his anticipated plan to take
his company public? Objective – Management responsibility, and
section 404.

(13-1) According to Case 1, the Lakeside Company is considering a
public offering of stock to finance its growth. At present, Abernethy
and Chapman do not presently have any audit clients that are
public companies. Write a report discussing how the Sarbannes-
Oxley Act impacts the firm's independence regarding the provision
of audit and non-audit services? Objective – The impact of the
proscribe non-audit services in general and in Abernathy and
Chapman case.

3

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