The Erin and Lee Case Study is a good introduction to the principles of auditing. Discuss. Erin

The Erin and Lee Case Study is a good introduction to the principles of auditing.

Discuss.

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Erin and Lee, Part 1 On 1 May 2017 Erin and Lee, two old friends in their early thirties, had recently been declared redundant, each having received 10 000 in redundancy pay. Lee said that he felt like using the money on travel to see the world, but Erin had seen a notice in the local newspaper, advertising the sale of bankrupt stock and suggested that the two of them go into business together. Her further suggestion was that they should buy an old lorry she had seen for sale for 8000 by a second hand motor vehicle dealer and to travel from place to place in the North of England selling the An accountant would say that the estimated gross margin was 60 per cent, calculated as: Gross profit x 100/Sales = 1.50 x 100/2.50 = 60% === bankrupt stock at a good mark-up. Erin thought that they might be able to sell for 2.50 what had cost them 1.00. Lee allowed himself to be convinced that this was a marvellous idea; they bought the lorry for 8000 and on 1 May 2017 spent 12 000 on bankrupt stock. On 2 June, Lee fell off the back of the lorry, breaking an arm and a leg. Erin visited him in hospital and told him not to worry; she would look after their joint venture and would only take 10 per cent of the profits for her trouble before sharing the proceeds of the venture equally between them. On 1 December, having spent the whole summer and autumn touring from place to place in the north of England, Erin appeared on Lee's doorstep, Lee in the meantime having recovered the use of his limbs. Erin took a wad of banknotes from her bag, informing Lee that this represented his share of the joint venture, which had just been wound up, and that Lee's share amounted to 12 960.