DISCUSSION CASE

$5-40$ Part I. Lernout & Hauspie $($L&H$)$ was the world's leading provider of speech and language technology products, solutions, and services to businesses and individuals worldwide. Both Microsoft and Intel invested millions in L&H$.$ However, accounting scandals and fraud allegations sent the company's stock crashing and forced the firm to seek bankruptcy protection in Belgium and the United States. The following selected information pertains to L&H$\text{'}$s sales and accounts receivable: LO $5-3,5-4,$ LO $5-5$

Consolidated revenue increased $184$ percent from the $1997$ fiscal year to the $1998$ fiscal year.

Revenue in South Korea, which has a reputation as a difficult market for foreign companies to enter, increased from $$97,000$ in the first quarter of $1999$ to approximately $$59$ million in the first quarter of $2000.$

In the second quarter of $2000,$ sales grew by $104$ percent but accounts receivable grew by $128$ percent.

Average days outstanding increased from $138$ days in $1998$ to $160$ days for the six$-$month period ended June $30,2000.$

Required:

a$.$ Based on the above information, which assertion$($s$)$ for sales should the auditor be most concerned with? Why?

b$.$ Based on the above information, which assertion$($s$)$ for accounts receivable should the auditor be most concerned with? Why?

c$.$ What audit evidence should the auditor wather to verify the assertion$($s$)$ for sales and accounts receivable? Be specific as to how each type of evidence relates to the assertions you ritientioned in parts $($a$)$ and $($b$)$ of this question.

Part II$.$ L&H$\text{'}$s auditor did not confirm accounts receivable from customers in South Korea. However, The Wall Street Journal contacted $18$ of L&H$\text{'}$s South Korean customers and learned the following:

Three out of $18$ customers listed by L&H stated that they were not L&H customers.

Three others indicated that their purchases from L&H were smaller than those reported by L&H$.$

Required:

a$.$ If L&H$\text{'}$s auditor had confirmed these receivables and received such responses, what additional evidence could he or she have gathered to try to obtain an accurate figure for sales to and accounts receivable from customers in South Korea?

b$.$ If you were L&H$\text{'}$s auditor and you had received such responses from South Korean customers, how likely would you be to use inquiry of the entity's Personnel as an audit procedure? Why?