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Lakeside Case 3

In: Business and Management

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Below are the potential problems/issues that the CPA firm might encounter in this audit with Lakeside Company, in order from one to seven, with one being the most important to the audit:

1. There appears to be a going concern for the industry that the Lakeside company is in. In 2005, Lakeside was in trouble, but has somewhat made a turnaround in 2010 and 2011; however, there are companies similar to Lakeside that are still going out of business. Within the last six months, and audio equipment company within the Richmond area went bankrupt. Also, while Roger’s distributorship business is growing, it seems that the remainder of his business is stagnant. In addition, it appears that Rogers has strayed from his original retail store operation into a new product market that may not be strong enough to support. With a failed product line in connecting with a weak market and continuous expansion on the basis of debt, this is a concern for the audit as an entity’s ability to remain a going concern and the potential for management fraud to inflate earnings and growth. 2. Rogers’ refusal to comply with his previous auditors request to report the companies sixth store with a write down in value to assess impairment, because Rogers believed no impairment existed. This argument led to the issue of a qualified opinion. The sixth store is located in an unsuccessful shopping center and has been underperforming. The company has not even come close to breaking-even and the failures of the shopping center make it appear uncertain if Lakeside could continue as a going concern. This is due partly in fact to the issue that Lakeside may not be able to dispose of the store if it became necessary, leading to more financial troubles. 3. Another issue surrounding the audit is the company’s consideration to go public in order to finance its growth. A public offering will put more

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