See the “The Leslie Fay Companies” case for this question.
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1-Prepare common-sized financial statements for Leslie Fay for the period 1987– 1991. For that same period, compute for Leslie Fay the ratios shown in Exhibit 2. Given these data, which financial statement items do you believe should have been of particular interest to BDO Seidman during that firm’s 1991 audit of Leslie Fay? Explain.
2-In addition to the data shown in Exhibit 1 and Exhibit 2, what other financial information would you have obtained if you had been responsible for planning the 1991 Leslie Fay audit?
3-List nonfinancial variables or factors relevant to a client’s industry that auditors should consider when planning an audit. For each of these items, briefly describe their audit implications.
4-Paul Polishan dominated Leslie Fay’s accounting and financial reporting functions and the individuals who were his subordinates. What implications do such circumstances pose for a company’s independent auditors? How should auditors take such circumstances into consideration when planning an audit?
5-Explain why the SEC ruled that BDO Seidman’s independence was jeopardized by the lawsuits that named the accounting firm, Leslie Fay, and top executives of Leslie Fay as codefendants.