ACCT 514 WORKSHOP 2.8 DISCUSSION, EXERCISES AND MEMO
Download (1) Why would the owners of Lakeside as well as the company's banks require that an independent CPA firm perform an annual audit? (2) This case implies that no auditor with the firm of Abernethy and Chapman has an in-depth understanding of the consumer electronics industry. Is a CPA firm allowed to accept an engagement without having established the necessary expertise to oversee the audit? Would the knowledge required to audit a consumer electronics company differ significantly from that needed in the examination of a car dealership? Does the auditor have an obligation to discuss his lack of expertise, or his plans to obtain the expertise with the client? (3) Auditors must assess the possibility of fraud risk factors. Fraud risk factors are events or situations that would indicate an increased possibility that fraud has occurred. Lakeside has recently created a profit-sharing bonus plan. Why might such an incentive be a special concern to an auditor? (4) Rogers wants Abernethy and Chapman to assist his company in developing new accounting systems. Does a CPA firm face an independence problem in auditing the output of systems that the same firm designed and installed? Does your answer depend on if the client is publicly traded or not? How so? (5) After the discussion at the CPA firm, Andrews was assigned to visit the headquarters/warehouse of Lakeside to tour the facility. What should Andrews observe, and what factors should he be especially aware of during this visit? (6) Is there any reason why Lakeside might not want to hire a CPA firm that has other clients in the electronics industry? (1) According to Statement on Auditing Standards, Consideration of Fraud in a Financial Statement Audit, the auditor should consider whether the information indicates that one or more fraud risk factors are present. Fraud risk factors are potential problems or indicators of potential fraud. Three conditions that are typically present when fraud exists: an incentive or pressure to perpetrate fraud, an opportunity to carry out the fraud, and the attitude to justify the fraudulent action. Based on the conference with Rogers, perform the following [Case1-1.doc]: a) List the fraud risk factors that the CPA firm might encounter if they accept this audit engagement. Be sure to include a discussion of all items that will probably require special attention during the audit. You should find at least 10 fraud risk factors. b) For each of these fraud risk factors, indicate how the auditor should follow up on each potential problem if the engagement is accepted. Consider how Abernethy and Chapman should include the fraud assessment in conducting the audit.