Santa Rosa Corporation is a closely held furniture manufacturing company employing approximately one thousand employees. On December 15, the corporation retained the firm of Warren and Wood, Certified Public Accountants, to perform a December 31 year-end audit. The president of the corporation explained that perpetual inventory records were maintained and that every attention was given to maintaining strong internal control. A complete count of inventories had been made at November 30 by the company's own employees; in addition, extensive test counts had been made in most departments at various intervals during the year. Although the company was not large, it employed an internal auditor and an assistant who had devoted their full time to analysis of internal control and appraisal of operations in the various organizational units of the company.

The certified public accountant who had audited Santa Rosa Corporation for several years had died during the current year, and the company had decided to forgo an annual audit. The physical inventory had therefore been taken at November 30 without being observed by an independent public accountant. Shortly thereafter, a major stockholder in the company had demanded that new auditors be retained. The president explained to Warren and Wood that the company was too far behind on its delivery schedules to take time out for another physical inventory, but that all the papers used in the recent count were available for their review. The auditors reviewed these papers, made a thorough analysis of the controls over inventory, and made test counts at December 31 of large items representing 10 percent of the total value of inventory. The items tested were traced to the perpetual inventory records, and no significant discrepancies were found. Inventories at December 31 amounted to \(\$ 4\) million out of total assets of \(\$ 9\) million.

Required:

Assume that the auditors find no shortcomings in any aspect of the audit apart from the area of inventories. You are to prepare:

a. An argument setting forth the factors that indicate the issuance of an unqualified audit opinion.

b. An opposing argument setting forth the factors that indicate the auditors should not issue an unqualified opinion.