Professional Documents
Culture Documents
Key The Lakeside Company
Key The Lakeside Company
90-day terms, but offer large cash discounts for early payment.
Lakeside policy to take all available discounts.
Cover cash needs with lines of credit with two banks - total $750,000,
interest rates floats with an average of 7% to 9% over last few years.
Both banks require a minimum cash balance of 5% of loan balance.
11. Building construction
Loans with National Insurance Company of Virginia.
With 9 1/4% interest and 10% interest respectively.
12. Reasons for changing CPA firms.
Unhappy with services.
Need help updating accounting system. Outgrowing control features of
current system.
Charging an excessive fee.
Audit opinion for 1996. The auditors to draw attention to an uncertainty
that was not disclosed by the Lakeside Company rendered a qualified
opinion. King was not satisfied that the company would be able to
recover the $186,000 investment in its latest store. This sixth store,
which opened in November of 1995, was constructed adjacent to a
shipping center that had proven to be very unsuccessful. To date, the
shopping center had leased less than 40% of its available space. The
Lakeside sore had, consequently, never been able to generate the
customer traffic necessary to even come close to a break-even point.
The continuing failure of the shopping center made the fate of the
Lakeside store appear quite uncertain to King and Company, and they
felt that the uncertainty should be disclosed by Lakeside.
13. Ownership
Eight investors
Rogers, age 46, owns 30% of Lakeside.
Other 7 own 6% to 22%.
Rogers only one involved in day-to-day activities.
Board of Directors: Rogers, two other owners, local lawyer.
All eight shareholders want an audit conducted annually, so do banks.
14. Stores
Each store has a manager and assistant manager.
Three to six sales clerks.
Bonus system started in 1996 to increase sales. Manager and
assistant manager receive cash bonus each January based on the
income earned (% of gross profit - any directly allocable expenses) by
their stores during the previous year.
15. Other stuff
Seventh store opening in December 1997. Owned by a separate
corporation owned by Rogers. Leased to Lakeside for entire life of
building.
Rogers is growth oriented. Lakeside is considering adding computers
to product line.
Memo
Date: August 26, 1999
To: Members of Abernethy and Chapman (A439 students)
From: Kathy Pollock, CPA
Re: Potential new audit client, Lakeside Company
Hopefully, you have all had a chance to review the preliminary information we have
gathered on our potential new client, Lakeside Company. The agenda for todays
meeting is as follows:
Introductory case
Case 1
Discuss issues involved with accepting Lakeside as a client
Staffing problems, if any
Prior auditor issues
Rogers reason for changing firms:
Lack of advisory services
Excessive fee
Qualified report
Environmental concerns
Potential audit problems
Reasons for the audit
Information needed to estimate time needed to do the audit
Other
Summary:
Know Abernathy and Chapman
Know Lakeside and Rogers