“The Lakeside Company: Auditing Cases
5. TESTS OF CONTROLS: THE REVENUE AND CASH
RECEIPTS CYCLE
Carole Mitchell, a supervising senior
auditor with the CPA firm of Abernethy and Chapman, has been assigned to the
Lakeside Company engagement. Her primary responsibility is evidence gathering
in connection with the examination of financial statements for the year ending
December 31, 2012. One of the audit areas that concern Mitchell is the accounts
receivable balance generated by the distributorship side of the company. On
December 31, 2011, this account made up 20% of the client’s total assets, and
analytical procedures applied to the September 30, 2012 trial balance revealed
several ominous signs relating to the current receivables in the
distributorship side of the business. The average age of the outstanding
accounts had jumped from 43.8 days, at September 30, 2011, to 53.0 days, as of
the present September 30. Since the company sells to its customers on terms of
2/10; n/45, this calculation indicated to Mitchell that the average balance was
presently overdue. In addition, the company’s write-off of accounts had
increased dramatically.

For the first nine months of 2011, only $10,600 in
receivables were judged to be bad, while $28,300 were considered uncollectible
during the same period in 2012. Consequently, she viewed the inherent risk in
this area to be quite high.
In the latter part of October, Mitchell
discussed her findings to date with Dan Cline and Wallace Andrews, audit
partner and audit manager for the engagement. At that meeting, Mitchell
outlined the critical areas as she perceived them within the Lakeside
examination. She also reminded Cline and Andrews of the initial brainstorming
meeting and several potential issues identified [See Case 1]. She indicated
that one of these potential problems was the company’s accounts receivable.
Because of her concern, Mitchell spent considerable time reviewing with Cline
and Andrews the revenue and cash receipts cycle. All three were aware that
receivables provide special opportunities for fraud, including theft and the
reporting of fictitious sales.
Because of the high level of inherent risk
for receivables, Cline suggested that further testing be done in hopes of
reducing the control risk initially assessed in this area. Otherwise, a
considerable amount of substantive testing would be required of the audit team.
Consequently, Mitchell was assigned to perform extensive testing to determine
if adequate control procedures and policies exist and are operating effectively.
Once this test of controls is finished, a decision can be reached as to the
amount of substantive testing that is necessary, and whether or not substantive
procedures, such as confirming accounts receivable, can be done on an interim
basis.
Cline also asked Mitchell to consider
possible internal control improvements that could be recommended to Lakeside.
Benjamin Rogers, the president of the company, had ndicated that he wanted the
systems to improve as the organization grew. Cline was well aware that
relations with the client would be improved if the auditing firm could propose
viable enhancements to the company’s controls.
Finally, at this same meeting, the audit
team decided that the existence of some of the accounts receivable balances
would be confirmed directly with the Lakeside customers. Andrews suggested that
interim balances as of November 30, 2012 (instead of final balances as of
December 31, 2012), be confirmed unless severe internal control problems were
encountered. The decision as to whether confirmations should be positive or
negative, along with the specific number of accounts to be confirmed, was left
to Mitchell’s judgment, subject to the approval of Cline and Andrews.
Mitchell began her evaluation of internal
control by identifying the control procedures incorporated within Lakeside’s
revenue and cash receipts cycle (see Exhibits 4-3 and 4-4). These systems
record both the increases and decreases made to accounts receivable. In her
opinion, a number of the procedures appear to be well designed for a company
the size of Lakeside, but several problems do exist. For example, no separate
credit and collection departments are maintained. Also, the limited size of the
company’s staff reduces the number of opportunities that are available for
dividing responsibilities.
She began testing the specific control
policies and procedures by seeking information that would enable her to answer
control questionnaires such as the one presented in Exhibit 5-1. The CPA firm
had designed each questionnaire with potential control problems in mind.
Mitchell anticipated being able to complete each of these documents after a
series of conferences with Lakeside employees.
On November 3, 2012, Mitchell visited the
Lakeside headquarters to discuss internal control matters with several
responsible officials. Her first conversation was with George Miller, assistant
to the president. (Refer to Exhibits 4-3 and 4-4.)
AUDITOR: Who has access to the accounts
receivable subsidiary ledger?
MILLER: I do, since I maintain the ledger,
but in our company, all records are really open. I imagine that anyone who
needed information could come in and look at them.
AUDITOR: How often do you age the accounts
receivable?
MILLER: Only at the end of the year.
However, I can easily review a specific account and determine its age at any
time that I want.
AUDITOR: Is the subsidiary ledger ever
tested by anyone else within the Lakeside organization?
MILLER: The independent auditors examine it
at least once a year. No other testing would seem necessary.
AUDITOR: If a customer complains that an
invoice is incorrect, who is responsible for investigating the matter?
MILLER: The Treasurer’s office opens all
mail. They have been directed to send any such complaints to me. I pull the
sales invoices from my file and see what the trouble is. I personally get in
touch with the customers to settle the problem.
AUDITOR: How do you verify credit approval?

MILLER: The sales representatives file
reports providing credit data gathered about potential clients. Rogers reviews
this information and sets a maximum credit figure. If the account ever becomes
overdue or if the customer exceeds this limit, further shipments are halted
unless approval is made by Rogers.
AUDITOR: How often does Rogers approve a
sale to such customers?
MILLER: I really do not know. The invoice
goes directly from Rogers to the Sales Division.
AUDITOR: How are the company’s sales
representatives paid?
MILLER: On a percentage commission based on
their total sales.
AUDITOR: Is any subsequent review made of
these credit reports?
MILLER: No. If payment is made, the company
is considered a good credit risk. Any customer that does not pay is a bad risk.

AUDITOR: Sales have risen; has Lakeside’s
credit policy been eased recently?
MILLER: Not really; the sales
representatives are excellent. They have been building a good group of new
customers.
AUDITOR: The average age of accounts
receivable in the distributorship side of the company has increased to over 53
days, which means that the average account is currently overdue. Why is that?
MILLER: The stores that sell Cypress
products are stocking up prior to Christmas. Sales are a little slow for them
right now, so their payments are sometimes delayed. Our collections will be
just fine again right after the Christmas rush.
AUDITOR: Why have so many receivables been
written off this year?
MILLER: I am not sure. We may have been
holding on to some accounts in hopes of collecting. Of course, we are also selling
more; we probably generate more bad debts.
AUDITOR: How do you determine bad debt
expense?
MILLER: We estimate our uncollectible
accounts at the end of each year based on 0.7% of net credit sales made by the
distributorship.
AUDITOR: How did Lakeside arrive at 0.7%?
MILLER: I don’t know. I think we have
always used that figure.
AUDITOR: How is the decision made as to
which specific accounts will actually be written off as uncollectible?
MILLER: After 60 days without payment, the
Sales Division pulls its copy of the sales invoice and re-bills the customer.
Thirty days later, a third bill is mailed and the Sales Division notifies me. I
contact the sales representative, who then puts pressure on the customer.
Subsequently, the sales representative reports directly to me concerning
possible payment. Based on this information, I make the decision as to whether
the account is collectible. Unless an obvious problem exists, we don’t even
think about writing off balances until they are five or six months old.
AUDITOR: Does the Sales Division send any
invoices after the third one is mailed at 90 days?
MILLER: No, any further billing is done by
me.
AUDITOR: Does Rogers or anyone else at
Lakeside verify the specific receivables that are deemed uncollectible?
MILLER: No, although Rogers has instructed
me to remove companies from the credit list when their balance becomes 5 months
old. Obviously, no further sales are made to these customers until payment is
received.
AUDITOR: Can inventory possibly be shipped
to a customer without prior credit approval?
MILLER: No. Either Rogers or I must initial
the sales invoice and return it to the Sales Division. Without those initials,
the Inventory Department is not allowed to process the order.
AUDITOR: Does anyone verify that the
invoices are correct as to prices, goods, extensions, etc.?
MILLER: The Sales Division rechecks
quantities and descriptions. I verify the prices and extensions when I receive
my copy of the sales invoice. Unfortunately, by the time I get around to extending
and pricing, the invoices are already out to the customers. On several
occasions, we have had to rebill a customer when I discovered an error.
AUDITOR: Could a sale be made and the
invoice get lost or just not be prepared so that the customer never gets
billed?
MILLER: I certainly hope not. Approved
sales invoices are filed in the Sales Division. If the bill of lading never
shows up, that division will eventually check into the shipment. Subsequently,
the Sales Division retains a copy of the completed sales invoice, I receive a
copy, and the Controller gets a copy. If one of these copies were to get lost,
the other two departments would follow up on the matter.
AUDITOR: What verification is made of the
cash discounts that are taken by customers?
MILLER: We are very tough on that issue.
Our Sales Department recalculates all discounts. They allow credit only if
deserved. If a company owes us $1,000 and pays $980, then $20 is still due
unless the terms of the discount have been met.
AUDITOR: I would like to get an aged
schedule of your accounts receivable as of November 30. Will that be possible?
MILLER: It is certainly inconvenient, but I
imagine we can get that done.
After talking with Miller, Carole Mitchell
prepared a program to test transaction details as well as the effectiveness of
the control procedures in the revenue and cash receipts cycle. The steps in
this program are presented in Exhibit 5-2.
DISCUSSION QUESTIONS
(1)
What is the quality of the oral evidence (“”inquiries””) that Mitchell
is gathering from Mr. Miller? That is, how competent is this type of evidence?
(2) The case states that accounts
receivable offer opportunities for theft. Provide several examples as to how
such theft might be perpetrated.
(3) Cline
also mentions that increased accounts receivable might indicate fictitious
sales. How and why would fictitious sales be recorded?
(4) What
information did Miller provide (or fail to provide) that would be troubling to
an auditor?
(5) Under
what conditions might the auditors omit testing the effectiveness of control
procedures?
(6) The
case states that inherent risk of a material misstatement of the account
receivable balance is high. If the firm cannot reduce its evaluation of control
risk to below the maximum level, how is planned detection risk affected? That
is, what is the impact on planned detection risk of both a high level of
inherent risk and a high level of control risk?
(7) What
is the difference between positive and negative accounts receivable
confirmations? When should one be used over the other?
(8) In
selecting receivables to confirm, some accounts are normally chosen at random
while others are specifically selected. What attributes indicate that a
specific account receivable should be confirmed?
(9) As
one testing procedure used in establishing the existence of reported amounts,
the auditor will take a figure found in the financial statements and trace its
components back through the various accounting records to the source documents
created at the time of the original transactions. This list of forms, records,
and documents leading through the accounting system is often referred to as an
audit trail. To accumulate evidence about the Accounts Receivable total, assume
that you have been assigned to substantiate a number of debit entries in
Lakeside’s ledger account. For example, you select a $2,800 debit entry made on
July 11, 2012. What items make up the audit trail for this amount, and what
information could be gathered from each? Indicate the degree of reliance the
auditor should place on the data derived from these individual sources. Refer
to Exhibit 4-3.
(10) Miller
said that Lakeside estimates bad debts at 0.7% of sales. How did the company
arrive at this 0.7% figure? Is this method reasonable? Why or why not? Why are
a client’s accounting estimates a particular problem area for an auditor? What
testing is normally performed to corroborate accounting estimates?
(11) Should
Mitchell recommend that the Accounts Receivable be confirmed as of November 30,
2012, or December 31, 2012? Why?
(12) Has
Miller made good decisions about designing the system over which he has
responsibility?
Exercises
(1) Exhibit
5-1 contains the questions that Mitchell is to answer concerning accounts
receivable control procedures. Using this case, as well as Exhibits 4-3 and
4-4, complete this questionnaire. [Case5-1.doc]
(2) Exhibit
5-2 is a portion of the audit program that Mitchell designed to test the
operating efficiency of controls in the revenue and cash receipts cycle. For
each individual test, indicate the anticipated results if the control procedure
is working properly. Also, if the control is not functioning properly, what
potential problems exist? Use the following format for your response:
[Case5-2.doc]
Step:
1-A
Anticipated
Results: The total listed on the sales invoice
should agree with the total on the sales invoice slip. In addition, evidence
should be present to indicate that a Lakeside employee has already made this
same comparison.
Potential
Problem(s): If the invoices do not agree, the
possibility is raised that fictitious or misstated sales are being recorded.
Lack of tangible evidence (e.g., initials) that the matching procedure has been
carried out would indicate that the employees are not complying with the requirements
of the system.
APPLY YOUR RESEARCH
Use library resources such as searchable
databases to research the following topic.
(1)
Write a report discussing the
auditor’s responsibility for detecting fraud, including fraudulent financial
reporting and misappropriation of assets. Also, discuss the signs that have
appeared in the first five cases that should alert the auditors to potential
fraud by Lakeside.
CONSULTING PARTNER REVIEW
Bob Zimmerman, the consulting partner on
the Lakeside engagement, is concerned about the following issues and would like
for you to respond to them. The audio clips are available online at
www.prenhall.com/arens.
(1) The
impact of loosening the credit-granting policy.
(2) Handling complaints from customersThe Lakeside Company: Auditing Cases5. TESTS OF CONTROLS: THE REVENUE AND CASH
RECEIPTS CYCLECarole Mitchell, a supervising senior
auditor with the CPA firm of Abernethy and Chapman, has been assigned to the
Lakeside Company engagement. Her primary responsibility is evidence gathering
in connection with the examination of financial statements for the year ending
December 31, 2012. One of the audit areas that concern Mitchell is the accounts
receivable balance generated by the distributorship side of the company. On
December 31, 2011, this account made up 20% of the client’s total assets, and
analytical procedures applied to the September 30, 2012 trial balance revealed
several ominous signs relating to the current receivables in the
distributorship side of the business. The average age of the outstanding
accounts had jumped from 43.8 days, at September 30, 2011, to 53.0 days, as of
the present September 30. Since the company sells to its customers on terms of
2/10; n/45, this calculation indicated to Mitchell that the average balance was
presently overdue. In addition, the company’s write-off of accounts had
increased dramatically. For the first nine months of 2011, only $10,600 in
receivables were judged to be bad, while $28,300 were considered uncollectible
during the same period in 2012. Consequently, she viewed the inherent risk in
this area to be quite high.In the latter part of October, Mitchell
discussed her findings to date with Dan Cline and Wallace Andrews, audit
partner and audit manager for the engagement. At that meeting, Mitchell
outlined the critical areas as she perceived them within the Lakeside
examination. She also reminded Cline and Andrews of the initial brainstorming
meeting and several potential issues identified [See Case 1]. She indicated
that one of these potential problems was the company’s accounts receivable.
Because of her concern, Mitchell spent considerable time reviewing with Cline
and Andrews the revenue and cash receipts cycle. All three were aware that
receivables provide special opportunities for fraud, including theft and the
reporting of fictitious sales.Because of the high level of inherent risk
for receivables, Cline suggested that further testing be done in hopes of
reducing the control risk initially assessed in this area. Otherwise, a
considerable amount of substantive testing would be required of the audit team.
Consequently, Mitchell was assigned to perform extensive testing to determine
if adequate control procedures and policies exist and are operating effectively.
Once this test of controls is finished, a decision can be reached as to the
amount of substantive testing that is necessary, and whether or not substantive
procedures, such as confirming accounts receivable, can be done on an interim
basis.Cline also asked Mitchell to consider
possible internal control improvements that could be recommended to Lakeside.
Benjamin Rogers, the president of the company, had ndicated that he wanted the
systems to improve as the organization grew. Cline was well aware that
relations with the client would be improved if the auditing firm could propose
viable enhancements to the company’s controls.Finally, at this same meeting, the audit
team decided that the existence of some of the accounts receivable balances
would be confirmed directly with the Lakeside customers. Andrews suggested that
interim balances as of November 30, 2012 (instead of final balances as of
December 31, 2012), be confirmed unless severe internal control problems were
encountered. The decision as to whether confirmations should be positive or
negative, along with the specific number of accounts to be confirmed, was left
to Mitchell’s judgment, subject to the approval of Cline and Andrews.Mitchell began her evaluation of internal
control by identifying the control procedures incorporated within Lakeside’s
revenue and cash receipts cycle (see Exhibits 4-3 and 4-4). These systems
record both the increases and decreases made to accounts receivable. In her
opinion, a number of the procedures appear to be well designed for a company
the size of Lakeside, but several problems do exist. For example, no separate
credit and collection departments are maintained. Also, the limited size of the
company’s staff reduces the number of opportunities that are available for
dividing responsibilities.She began testing the specific control
policies and procedures by seeking information that would enable her to answer
control questionnaires such as the one presented in Exhibit 5-1. The CPA firm
had designed each questionnaire with potential control problems in mind.
Mitchell anticipated being able to complete each of these documents after a
series of conferences with Lakeside employees.On November 3, 2012, Mitchell visited the
Lakeside headquarters to discuss internal control matters with several
responsible officials. Her first conversation was with George Miller, assistant
to the president. (Refer to Exhibits 4-3 and 4-4.)AUDITOR: Who has access to the accounts
receivable subsidiary ledger?MILLER: I do, since I maintain the ledger,
but in our company, all records are really open. I imagine that anyone who
needed information could come in and look at them.AUDITOR: How often do you age the accounts
receivable?MILLER: Only at the end of the year.
However, I can easily review a specific account and determine its age at any
time that I want.AUDITOR: Is the subsidiary ledger ever
tested by anyone else within the Lakeside organization?MILLER: The independent auditors examine it
at least once a year. No other testing would seem necessary.AUDITOR: If a customer complains that an
invoice is incorrect, who is responsible for investigating the matter?MILLER: The Treasurer’s office opens all
mail. They have been directed to send any such complaints to me. I pull the
sales invoices from my file and see what the trouble is. I personally get in
touch with the customers to settle the problem.AUDITOR: How do you verify credit approval?
MILLER: The sales representatives file
reports providing credit data gathered about potential clients. Rogers reviews
this information and sets a maximum credit figure. If the account ever becomes
overdue or if the customer exceeds this limit, further shipments are halted
unless approval is made by Rogers.AUDITOR: How often does Rogers approve a
sale to such customers? MILLER: I really do not know. The invoice
goes directly from Rogers to the Sales Division. AUDITOR: How are the company’s sales
representatives paid?MILLER: On a percentage commission based on
their total sales.AUDITOR: Is any subsequent review made of
these credit reports?MILLER: No. If payment is made, the company
is considered a good credit risk. Any customer that does not pay is a bad risk.
AUDITOR: Sales have risen; has Lakeside’s
credit policy been eased recently?MILLER: Not really; the sales
representatives are excellent. They have been building a good group of new
customers.AUDITOR: The average age of accounts
receivable in the distributorship side of the company has increased to over 53
days, which means that the average account is currently overdue. Why is that?MILLER: The stores that sell Cypress
products are stocking up prior to Christmas. Sales are a little slow for them
right now, so their payments are sometimes delayed. Our collections will be
just fine again right after the Christmas rush.AUDITOR: Why have so many receivables been
written off this year?MILLER: I am not sure. We may have been
holding on to some accounts in hopes of collecting. Of course, we are also selling
more; we probably generate more bad debts. AUDITOR: How do you determine bad debt
expense?MILLER: We estimate our uncollectible
accounts at the end of each year based on 0.7% of net credit sales made by the
distributorship.AUDITOR: How did Lakeside arrive at 0.7%?MILLER: I don’t know. I think we have
always used that figure.AUDITOR: How is the decision made as to
which specific accounts will actually be written off as uncollectible?MILLER: After 60 days without payment, the
Sales Division pulls its copy of the sales invoice and re-bills the customer.
Thirty days later, a third bill is mailed and the Sales Division notifies me. I
contact the sales representative, who then puts pressure on the customer.
Subsequently, the sales representative reports directly to me concerning
possible payment. Based on this information, I make the decision as to whether
the account is collectible. Unless an obvious problem exists, we don’t even
think about writing off balances until they are five or six months old.AUDITOR: Does the Sales Division send any
invoices after the third one is mailed at 90 days?MILLER: No, any further billing is done by
me.AUDITOR: Does Rogers or anyone else at
Lakeside verify the specific receivables that are deemed uncollectible? MILLER: No, although Rogers has instructed
me to remove companies from the credit list when their balance becomes 5 months
old. Obviously, no further sales are made to these customers until payment is
received.AUDITOR: Can inventory possibly be shipped
to a customer without prior credit approval? MILLER: No. Either Rogers or I must initial
the sales invoice and return it to the Sales Division. Without those initials,
the Inventory Department is not allowed to process the order.AUDITOR: Does anyone verify that the
invoices are correct as to prices, goods, extensions, etc.? MILLER: The Sales Division rechecks
quantities and descriptions. I verify the prices and extensions when I receive
my copy of the sales invoice. Unfortunately, by the time I get around to extending
and pricing, the invoices are already out to the customers. On several
occasions, we have had to rebill a customer when I discovered an error.AUDITOR: Could a sale be made and the
invoice get lost or just not be prepared so that the customer never gets
billed? MILLER: I certainly hope not. Approved
sales invoices are filed in the Sales Division. If the bill of lading never
shows up, that division will eventually check into the shipment. Subsequently,
the Sales Division retains a copy of the completed sales invoice, I receive a
copy, and the Controller gets a copy. If one of these copies were to get lost,
the other two departments would follow up on the matter.AUDITOR: What verification is made of the
cash discounts that are taken by customers? MILLER: We are very tough on that issue.
Our Sales Department recalculates all discounts. They allow credit only if
deserved. If a company owes us $1,000 and pays $980, then $20 is still due
unless the terms of the discount have been met.AUDITOR: I would like to get an aged
schedule of your accounts receivable as of November 30. Will that be possible? MILLER: It is certainly inconvenient, but I
imagine we can get that done.After talking with Miller, Carole Mitchell
prepared a program to test transaction details as well as the effectiveness of
the control procedures in the revenue and cash receipts cycle. The steps in
this program are presented in Exhibit 5-2.DISCUSSION QUESTIONS (1)
What is the quality of the oral evidence (“”inquiries””) that Mitchell
is gathering from Mr. Miller? That is, how competent is this type of evidence?(2) The case states that accounts
receivable offer opportunities for theft. Provide several examples as to how
such theft might be perpetrated.(3) Cline
also mentions that increased accounts receivable might indicate fictitious
sales. How and why would fictitious sales be recorded?(4) What
information did Miller provide (or fail to provide) that would be troubling to
an auditor?(5) Under
what conditions might the auditors omit testing the effectiveness of control
procedures?(6) The
case states that inherent risk of a material misstatement of the account
receivable balance is high. If the firm cannot reduce its evaluation of control
risk to below the maximum level, how is planned detection risk affected? That
is, what is the impact on planned detection risk of both a high level of
inherent risk and a high level of control risk?(7) What
is the difference between positive and negative accounts receivable
confirmations? When should one be used over the other?(8) In
selecting receivables to confirm, some accounts are normally chosen at random
while others are specifically selected. What attributes indicate that a
specific account receivable should be confirmed?(9) As
one testing procedure used in establishing the existence of reported amounts,
the auditor will take a figure found in the financial statements and trace its
components back through the various accounting records to the source documents
created at the time of the original transactions. This list of forms, records,
and documents leading through the accounting system is often referred to as an
audit trail. To accumulate evidence about the Accounts Receivable total, assume
that you have been assigned to substantiate a number of debit entries in
Lakeside’s ledger account. For example, you select a $2,800 debit entry made on
July 11, 2012. What items make up the audit trail for this amount, and what
information could be gathered from each? Indicate the degree of reliance the
auditor should place on the data derived from these individual sources. Refer
to Exhibit 4-3.(10) Miller
said that Lakeside estimates bad debts at 0.7% of sales. How did the company
arrive at this 0.7% figure? Is this method reasonable? Why or why not? Why are
a client’s accounting estimates a particular problem area for an auditor? What
testing is normally performed to corroborate accounting estimates?(11) Should
Mitchell recommend that the Accounts Receivable be confirmed as of November 30,
2012, or December 31, 2012? Why?(12) Has
Miller made good decisions about designing the system over which he has
responsibility?Exercises(1) Exhibit
5-1 contains the questions that Mitchell is to answer concerning accounts
receivable control procedures. Using this case, as well as Exhibits 4-3 and
4-4, complete this questionnaire. [Case5-1.doc](2) Exhibit
5-2 is a portion of the audit program that Mitchell designed to test the
operating efficiency of controls in the revenue and cash receipts cycle. For
each individual test, indicate the anticipated results if the control procedure
is working properly. Also, if the control is not functioning properly, what
potential problems exist? Use the following format for your response:
[Case5-2.doc]Step:1-AAnticipated
Results: The total listed on the sales invoice
should agree with the total on the sales invoice slip. In addition, evidence
should be present to indicate that a Lakeside employee has already made this
same comparison.Potential
Problem(s): If the invoices do not agree, the
possibility is raised that fictitious or misstated sales are being recorded.
Lack of tangible evidence (e.g., initials) that the matching procedure has been
carried out would indicate that the employees are not complying with the requirements
of the system.APPLY YOUR RESEARCHUse library resources such as searchable
databases to research the following topic.(1)
Write a report discussing the
auditor’s responsibility for detecting fraud, including fraudulent financial
reporting and misappropriation of assets. Also, discuss the signs that have
appeared in the first five cases that should alert the auditors to potential
fraud by Lakeside.CONSULTING PARTNER REVIEWBob Zimmerman, the consulting partner on
the Lakeside engagement, is concerned about the following issues and would like
for you to respond to them. The audio clips are available online at
www.prenhall.com/arens.(1) The
impact of loosening the credit-granting policy. (2) Handling complaints from customers”