Cornwall Ltd engaged Jane Thompson to perform its audit for the year ended 31 December 20X2. The financial statements for the previous year were audited by Frank Bassett who expressed an unqualified opinion.

Jane Thompson’s audit working papers contain the following information that does not appear in the 31 December 20X2 financial statements of Cornwall Ltd.

• During the year, Cornwall changed its method of valuing inventory from the first-in first-out method to the weighted average method. This change was made as management believes first-in first-out more clearly reflects net income by providing a closer matching of costs and revenues. The change had the effect of reducing inventory at 31 December 20X2 by £65,000. The effect of the change on prior years was immaterial.

Jane firmly supports the company’s position.

• The company refused to capitalise certain lease obligations for equipment acquired in 20X2. Capitalisation of the leases in accordance with SSAP 21 (IAS 17) would have increased assets and liabilities by £312,000 and £387,000 respectively. Jane has concluded that the leases should have been capitalised.

Required

Prepare the auditors’ report Jane Thompson should issue for the year ended 31 December 20X2.