Lakeside Case 2 Essay

7157 Words Feb 24th, 2013 29 Pages
February 7, 2013

Abernathy and Chapman
Wallace Andrews Lakeside
1235 Sentry Drive
Richmond, Virginia 66266

Dear Mr. Wallace,

We have researched the issues that were discussed regarding the possibility of Lakeside Company going public and the ramifications this action would have on their desirability as a client. We have also analyzed Lakeside Company’s financial statements to evaluate the possibility of misstatements. Attached, you will find our report discussing these issues.

Please contact us with any further questions.


Mariana Welch

Cc: Bob Zimmerman

Case Two: New Clients, Legal Liability and Materiality

Table of Contents Executive Summary 4 Discussion Questions 5 Apply Your Research
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In this case the situation is that King and Company offered a qualified opinion on the investment of a fixed asset that being Store Six. With the potential closing of Store Six, auditors should compare the clients net income before taxes that being $408,000 to the potential loss of $186,000. Even if one takes into account what Rogers has stated in that he could sell the Sixth Store for $100,000 to decrease the loss, but considering the location, failure of the shopping center to create growth and the weak market in the Richmond area; it might be difficult to sell the asset at that price. Therefore, considering even at best the loss would still be material.

2. If Roger had not consented in having Abernethy talk with to predecessor auditor, what actions would have been open to Abernethy?

Abernathy and Chapman must talk with the predecessor auditor before accepting the engagement. Bearing in mind that Rodgers and the predecessor auditor may have disagreed about accounting principles as well as auditing procedures, it is important that Abernethy have the opportunity to discuss with King and

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