Lakeside case 8 Composition

Discussion Questions- Case 8

2) A great over depend of finishing inventory could lead to a decrease in costs of goods distributed which leads for an increase in net gain. Anytime a firm wants a better net income you will find the potential for more than counting of inventory. This kind of potential issue is especially significant in the audit of the Lake-front stores since manager's with the each retail store get a reward based on the store's net income. They are also precisely the same people who depend the inventory. It would be very tempting for the managers to over-count their very own inventory to be able to increase their benefit. 3) A great undercount of ending inventory would cause an increase in expense of goods marketed which leads into a decrease in net gain. A company may possibly undercount inventory to delay payment of income taxes. This problem is more likely to happen to a company struggling with all their cash flow. This kind of potential problem is not specifically significant to the Lakeside shops unless that they wanted to reduce their current taxes. 4) In the engagement letter given to a client it says that " the auditor will be able to obtain fair, but not overall, assurance that material misstatements are diagnosed. 1” What this means is the auditor is not responsible for making sure there is not blunders or misstatement but they are accountable for reasonable assurance. The wisdom of the auditor is " required to end up being the informed judgment of a qualified specialist person2” Basically the auditors at Chapman are evaluated by what the standard auditor exercising due treatment would perform. If they do this then they will be providing affordable assurance. Furthermore, Chapman must show all of their work as proof that they did a thorough task auditing Lake-front and are not negligent through the audit. In the event the average auditor exercising because of care might have detected the material misstatement then Chapman would be considered negligent in its audit of Lake-front, and Lakeside can obtain payment coming from Chapman for almost any losses received because of Chapman's negligence....