Question

The following audit report was drafted by an assistant at the completion of the audit of Cramdon Inc., on March 1, 20X5. The partner in charge of the engagement has decided the opinion on the 20X4 financial statements should be modified only with reference to the change in the method of computing sales. Also, because of a litigation uncertainty, an uncertainty paragraph was included in the audit report on the 20X3 financial statements, which are included for comparative purposes. The 20X3 audit report (same audit firm) was dated March 5, 20X4, and on October 15, 20X4, the litigation was resolved in favor of Cramdon Inc.

Auditor’s Report
To the Board of Directors of Cramdon Inc.:
We have audited the accompanying financial statements of Cramdon Inc., as of December 31, 20X4 and 20X3. These financial statements are the responsibility of the Company’s Management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
As discussed in Note 7 to the financial statements, our previous report on the 20X3 financial statements contained an explanatory paragraph regarding a particular litigation uncertainty. Because of our lawyer’s meritorious defense in this litigation, our current report on these financial statements does not include such an explanatory paragraph.
In our opinion, based on the preceding, the financial statements referred to above present fairly, in all material respects, the financial position of Cramdon Inc., as of December 31, 20X4, and the results of its operations and its cash flows for the period then ended in conformity with generally accepted accounting principles consistently applied, except for the changes in the method of computing sales as described in Note 14 to the financial statements.
/s/ PA Firm
March 5, 20X5

Required:
Identify the deficiencies and errors in the draft report and write an explanation of the reasons they are errors and deficiencies. Do not rewrite the report.



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  • CreatedJanuary 09, 2015
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