Lakeview Lumber, Inc. involves several auditing and accounting issues, including concepts related to Statement on Auditing Standards (SAS) No. 82, Consideration of Fraud in a Financial Statement Audit (AICPA 1997). The case highlights management's potential motivation to manipulate net income in response to a bonus compensation scheme. Lakeview Lumber also provides a framework for discussion of issues related to professional judgment, audit supervision and materiality. More specifically, the case emphasizes the professional judgment required in the estimation of selected account balances and in determining the accounting treatment of transactions related to unusual or extraordinary events. The concept of materiality, in conjunction with the interpretation and application of professional standards, is also discussed. In addition, the case gives students an opportunity to perform analytical review, prepare common‐size statements and use the Internet to find professional pronouncements and financial information.
