Lakeside Reveiw of Events

Key Facts

- Final phase of the audit procedure

- Confirmations are being returned from the banks

- Information from board of directors meeting regarding warehouse being built, fire and dividends

- Review of cash disbursements and invoices

- Search for contingent losses

- Research into related party transactions with Mr Rodgers’ company

- Final analytical review was performed

- Issues regarding the calculations of the product warranties and if they are accurate or not

Discussion questions

1. In examining the bank cut-off statement the auditor is seeking evidence that all reported transactions took place within the correct period and did not miss the cut off date

2. They continue to send confirmation letters to banks to ensure that there is no fraud occurring with the use of closed accounts. Bank confirmation is a highly persuasive type of evidence since banks control the cash and can see any transactions involving it.

3. The continuing construction of the warehouse would require it to not be part of the property section of the balance sheet since it is not able to yet be used at the time of the statements. The fire would require a note in the 2006 statements since while it did occur in 2007 it’s a major event that shareholders should be aware of and the declaration of a cash dividend would have no impact on the 2006 statements.

4. The purpose of a cut off test is to ensure that all transactions took place in the proper period. The cut off testing is important for the Lakeside engagement since it has a large amount of inventory to be tested.

5. Unrecorded liabilities can be a special problem since it’s hard to determine if a liability exists and understating liabilities can have lots of benefits for a company so it can be a common problem.

6. The search for contingent losses can be a major concern for an auditor because contingent losses can be very large but it’s really hard to know if they will be incurred or not which can cause...