Auditing: Complete the given bolded sections.

Read the case 5-40 below and understand its questions (a, b, c) before proceed to the next section:

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's sales and accounts receivable: . 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 gather to verify the assertion(s) for sales and accounts receivable? Be specific as to how each type of evidence relates to the assertions you mentioned in parts (a) and (b) of this question.Grading Peer Review Criteria Ratings Pts Demonstrates thoughtful consideration of material by citing evidence from the reading 2 pts 0 pts Full Marks No Marks 2 pts Demonstrates consideration for communicating ideas with complete sentences and proper spelling 2 pts 0 pts Full Marks No Marks 2 pts Review comments demonstrate a focus on evaluation criteria that is clearly communicated in the review 2 pts 0 pts Full Marks No Marks 2 pts Comments are constructive using the principles from "How to give good recommendations" 2 pts 0 pts Full Marks No Marks 2 pts Review cited evidence and asked probing questions when appropriate for further exploration of ideas. 2 pts 0 pts Full Marks No Marks 2 pts Total Points: 10Based on the information provided in Messier lle Discussion case 5-40, part l= the auditor should be concerned about many things. It is startling that Lernout 3: Hauspie were about to forge this selected nancial information and not get caught. The company caused themselves to go bankrupt because of the misstatement and fraud that they committed. Regarding the information presented in the case= the auditor for Lernout 1 Hauspie should be most concerned about the existence assertion pertaining to the sales numbers presented. The existence management assertion has to do with the overstatement, typically involving asset accounts. A company would overstate one of their asset accounts to make it seem as though theyr were performing, revenue wise, better than they were. As stated in the case, between the scal years of 199? and 1993, Lernout d: Hauspie's revenue increased almost EDD percent. This seems nearly impossible. Therefore= an auditor should be very concerned about this jump in revenue. Also stated in the case: during the months of April, Delay, and June of E, sales more than doubled. This should concern an auditor and encourage them to investigate the facts of why sales and revenue increased so drastically during these periods. Another alarming piece of information in the case includes the statistics about Lernout 3c Hauspie: s accounts receivable. An auditor should apply the valuation management assertion to the accounts receivable for L :3: H to determine if the growth of 123% was legit. A company would be tempted to overstate their accounts receivable to keep up with their possible overstated sales and revenue numbers. Since L S: H stated that their sales and revenue had grown so much, correspondingly, leir receivables accounts would increase since they did not have this revenue owing in as cash. The auditor needs to compare documents to ensure that the numbers stated by Lernout :5: Hauspie, regarding the accounts receivable, match the corresponding sales and notes payable. To verify the nancial information that Lernout :5: Hauspie stated for these years, the auditor will need to gather audit evidence. To verify the assertions regarding sales for L 3:: H, the auditor would need to collect information from sales invoices, inventory reports, sales orders, shipping documents, cash receipts, and more documents if needed. If the auditor was to gather these documents from both the company and their clients, they would be able to verify or prove the misstatement of the sales numbers provided by L 3:. H. To verify the assertions regarding the accounts receivable for L St H, the auditor would need to collect documents such as account balances from banks, notes payable from the company and the corresponding customers, sales invoices, and more. The best way to veri! financial information is through external sources. If the auditor can get information from the banks that the company uses, the information would be more reliable. If the auditor can obtain these documents, they can test the existence assertion pertaining to sales and the valuation assertion pertaining to the accounts receivable of Lernout St Hauspie. If an auditor followed the procedures listed above, they would be able to detect the fraud and misstatement that Lernout St Hauspie tried to get away with. The reason L St H went bankrupt is because of the misstatement of their fmancials and if an auditor had caught their misstatement and aud attempt, L 3:. H may have been able to fut their mistakes and not go bankrupt