Inherent Risk Assessment of Lakeside Company
Client: Lakeside Company
Balance Sheet Date:
Prepared by: Abernethy and Chapman
Factor Discussion Low Moderate High
Nature of client’s business In the competitive electronics industry there is a higher concern for obsolescence and theft as technology is always changing and is usually of high value. This type of industry is quite volatile as sales will fluctuate according to the economy. X
Results of previous audits The predecessor auditor determined there was a material impairment with store six. However, Rogers disagreed and did not want to write this asset down. Unless Rogers changes his mind this would present Abernethy and Chapman with a high risk situation. X
Initial versus repeat engagement The initial engagement presents a higher risk then a repeat engagement. As Abernethy and Chapman works more closely with Lakeside they will …show more content…
The auditor should assess the integrity of the employees and independence of duties so as to minimize risk. X
Potential manipulation of accounts affected by bank covenants Lakeside finances heavily with debt. Their lenders likely protected their funds given to Lakeside through covenants. This means, for example, their loan is subject to certain conditions such as a minimum amount of sales or interest earned ratio. This increases risk as Lakeside might adjust their financials to meet these requirements. X
Reliance on one Supplier Cypress is Lakeside’s main supplier. If there is a detrimental disagreement with Cypress or Cypress faces a financial crisis, Lakeside will be in trouble. They will have to find a supplier immediately to continue to run their business which tends to be difficult. X
Conclusion: Overall inherent risk level Discussion for overall level is below
Client: Lakeside Company
Balance Sheet Date:
Prepared by: Abernethy and Chapman
Factor Discussion Low Moderate High
Nature of client’s business In the competitive electronics industry there is a higher concern for obsolescence and theft as technology is always changing and is usually of high value. This type of industry is quite volatile as sales will fluctuate according to the economy. X
Results of previous audits The predecessor auditor determined there was a material impairment with store six. However, Rogers disagreed and did not want to write this asset down. Unless Rogers changes his mind this would present Abernethy and Chapman with a high risk situation. X
Initial versus repeat engagement The initial engagement presents a higher risk then a repeat engagement. As Abernethy and Chapman works more closely with Lakeside they will …show more content…
The auditor should assess the integrity of the employees and independence of duties so as to minimize risk. X
Potential manipulation of accounts affected by bank covenants Lakeside finances heavily with debt. Their lenders likely protected their funds given to Lakeside through covenants. This means, for example, their loan is subject to certain conditions such as a minimum amount of sales or interest earned ratio. This increases risk as Lakeside might adjust their financials to meet these requirements. X
Reliance on one Supplier Cypress is Lakeside’s main supplier. If there is a detrimental disagreement with Cypress or Cypress faces a financial crisis, Lakeside will be in trouble. They will have to find a supplier immediately to continue to run their business which tends to be difficult. X
Conclusion: Overall inherent risk level Discussion for overall level is below