...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...
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...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...
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...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...
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...assignment 1 CASE Lakeside Hospital Financial information & decision making bm01Afm 2015-2016 The abovementioned students declare that this report contains original work and all the team members equally contributed to its preparation. Question 1. To calculate the break-even volume for the dialysis unit we first assume that every patient receives three treatments a week, 156 a year. We use the numbers of last year to calculate the break-even volume as stated in exhibit 1 and 2 of the case. We assume that the allocated expenses and all other costs, except for the major equipment depreciation, stay the same. Since the 14 machines cannot be sold after four years and they are for already five years in the company, we define this as a sunk cost and the major equipment depreciation is not included in the calculation of the break-even volume. The fixed costs are the salaries and wages as stated in Exhibit 2. The supplies and purchases services are not included since they differ according to the number of treatments provided. The fixed costs are therefore 438,900 + 71,970=$510,870. However the annualized salaries have decreased by 84,000 and the fringe benefits by 8,400 and the major equipment depreciation of 26,250 is not included anymore. The fixed costs decrease to $392,220 (510,870 – 84,000 – 8,400 – 26,250 =$392,220). The allocated expenses are $277,267, which makes total fixed costs of (277,267+392,220) $669...
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...Exercises Exercise 1 Following his discussion with Rogers, Andrews talked briefly with Carole Mitchell concerning the warehouse expansion. She indicated that Art Heyman had already prepared an analysis of the repairs and Maintenance account (see Exhibit 9-4). In addition, based on the debits to the Warehouse account (see Exhibit 9-5) he had located the invoices substantiating the capitalized transactions (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 | | |...
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...Executive Summary De Havilland (Havilland) is Canadian aircraft manufacturer that was recently acquired by Boeing. The parent company has requested Havilland take on several initiatives including seeking 25% price reductions from suppliers, reducing the total number of suppliers and seeking more long-term fixed pricing agreements. Havilland recently received submissions for an RFQ for the supply of supply flap shrouds and equipment bay doors. The pricing received raises some concerns however, as there are large variations in pricing between the lowest price from Marton Enterprises Inc. (Marton) and the highest price from the incumbent, Dollard Plastics (Dollard). There are several viable alternatives for Havilland. They may accept the bid from Marton on the condition that it is assured Marton fully understands the scope, their facilities are sufficiently equipped, and they provide their financials. It will be in Havilland’s best interests not to pursue their policy under the Bidder Selection Board (BSB) to attempt to renegotiate the price lower since Marton already provided substantial savings. The next option for Havilland is to pursue the first option but only given Marton 80% of the work for the first year and keep the incumbent under contract for the remaining 20% of work. The third option is to cancel the RFQ, clarify with the bidders what was unclear in the specifications that resulted in such a wide variation in pricing and go out for bids again. The final option...
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...Executive Summary De Havilland (Havilland) is Canadian aircraft manufacturer that was recently acquired by Boeing. The parent company has requested Havilland take on several initiatives including seeking 25% price reductions from suppliers, reducing the total number of suppliers and seeking more long-term fixed pricing agreements. Havilland recently received submissions for an RFQ for the supply of supply flap shrouds and equipment bay doors. The pricing received raises some concerns however, as there are large variations in pricing between the lowest price from Marton Enterprises Inc. (Marton) and the highest price from the incumbent, Dollard Plastics (Dollard). There are several viable alternatives for Havilland. They may accept the bid from Marton on the condition that it is assured Marton fully understands the scope, their facilities are sufficiently equipped, and they provide their financials. It will be in Havilland’s best interests not to pursue their policy under the Bidder Selection Board (BSB) to attempt to renegotiate the price lower since Marton already provided substantial savings. The next option for Havilland is to pursue the first option but only given Marton 80% of the work for the first year and keep the incumbent under contract for the remaining 20% of work. The third option is to cancel the RFQ, clarify with the bidders what was unclear in the specifications that resulted in such a wide variation in pricing and go out for bids again. The final option...
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...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...
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...De Havilland is a very successful and well known name in the aviation industry. The company has been procuring Flap Shrouds and Equipment Bay doors from two of its major vendors. However Dollard Plastics, the Flap shroud vendor refused any renegotiations with de Havilland. Kim Tomar, the Financial Analyst at De Havilland had realized that issue and therefore started the process of finding a new business partner who is capable of meeting a set of standards that De Havilland had developed earlier for their procurement department, had started the process about year and half earlier than the expiry date with the incumbent supplier. After careful analysis of the nine bids received by de Havilland, I recommended Morton to De Havilland’s Source Selection Board (SSB) as prospective vendor. Based on the initial information from the normalized bids from all nine bidders, the lowest bid was Morton Enterprises. Their bid was 18% lower than their nearest competitor, and when I compared prices of the needed components to the prices supplied by current providers they were between 54% and 74% less expensive. However, beyond parts cost reduction we are also interested in establishing long-term co-operative contracts with the vendor. So, apart from determining who had the best price offer, I need to determine whether Morton is sufficiently stable to be relied upon in the long run. So my strategic intention here is to negotiate an agreement with Morton that will be of the greatest value possible...
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...Case 4 - Exercise 4-2 (a) INTERNAL CONTROL - PRELIMINARY ANALYSIS CLIENT: Lakeside Company SYSTEM: DATE: PREPARED BY: Roseville Santos List each document found in this system, the number of copies, and whether it is prepared internally or externally. * Sales Invoice * Two copy * internal * Invoice Slips * One copy * internal * Validated bank deposit slips * Two copies * internal * Cash remittance * Four copies * internal * Bank statement * One copy * external * Bank reconciliation * One copy * internal * Bill of lading * One copy * Internal Answer each of the following questions. For each...
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...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? | | |...
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...Case 4 - Exercise 4-2 (a) INTERNAL CONTROL - PRELIMINARY ANALYSIS CLIENT: Lakeside SYSTEM: DATE: 10/11/12 PREPARED BY: List each document found in this system, the number of copies, and whether it is prepared internally or externally. Bank Reconciliation: prepared internally and one copy per month Invoice Slips: prepared internally with one copy per payment Validated Bank Deposit Slips: prepared internally and there are two copies per day Sales Invoice: prepared internally Cash Remittance List: prepared internally with four copies per day Bank Statement: prepared externally with one copy a month 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? | | X | None of the documents other than the sales invoices and bills of lading are renumbered | (2) Is the authority for completing each document clearly delineated? | X | | | (3) Are...
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...SUPPLEMENTAL CASE: Chapter 1 Case: Phillips Furniture Ten years ago Albert Phillips opened his own retail store and sold unpainted furniture. His store was located in Lakeside, a small city in the southeastern part of the United States. Although his business was somewhat slow first, it grew steadily. Many more sales, stock, and clerical personnel were hired. However, it soon became evident that Mr. Phillips was not able to effectively service all potential customers. Warehouse space was also badly needed. Phillips Furniture Store was situated in a central location, and Mr. Phillips was hesitant about relocating. As an alternative to relocating, Mr. Phillips opened a satellite store in an outlying district to attract a new source of customers, as well as to provide better service to his current customers. Mr. Phillip eventually expanded his business into several neighboring towns until he had a total of six stores. When Martin Furniture, a small manufacturing firm that supplied some of the furniture for Phillips, became financially unstable, Mr. Phillips was able to gain control of the manufacturing plant. At the end of last week, you were called into Mr. Phillips’ office, and Mr. Phillips said, to you, “I have been pleased with your progress with us as a management trainee since you graduated six months ago.” He explained that he felt that the company had gotten large enough to need a personnel manager. Previously, all managers handled...
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... Addison has 22 hotels, featuring a total of at least 4,000 hotel rooms and meeting facilities. Addison Airport consumes roughly half of the city's 4.4 sq mi and is the third-largest general aviation airport in the nation. Major corporate headquarters in Addison include Dresser and Mary Kay Cosmetics. Other major employers in Addison include Bank of America. Other companies based in Addison include Jani-King and Palm Harbor Homes. Martinaire has its headquarters on the property of Addison Airport. Compuware has offices in Addison. At one time CompUSA and Pizza Hut had their headquarters in Addison, Now located in Plano. Addison is located in close proximity to the headquarters of HP Enterprise Services, JC Penney, and Frito Lay in Plano. From the readings it can be assumed that Addison became incorporated as a city during the white flight phenomenon. White flight began on a large scale after the Second World War, when African-Americans began to try to establish homes in America's cities. Many of these men and women were starting to enter the middle class themselves, with good jobs, education, and community values. In many cases, however, racism led whites to attempt to force blacks out. When this proved unsuccessful, the white population moved to the suburbs, establishing new and primarily racially homogeneous communities. Even though that is how Addison got its start, Addison has grown...
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...improve the quality of your questions and responses to my questions. Academic Honesty and Integrity Millersville University places a high value on academic honesty. It is expected that all work performed for credit in this course will be your own. This course will be administered in strict compliance with the university policy. Special accommodations Any student wishing to request a special accommodation need only make such a request before the end of the second week of class. Please call the Associate VP for Student Support- 872-3178. My 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...
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