You are in charge of the audit of Saskatoon Building Products Limited (SBP), a company listed on the Vancouver Stock Exchange. In the course of your audit, you discover that SBP's working capital ratio is below 2:1 and that, therefore, the company is in default on a substantial loan from Prairie Bank. Management announces to you its intention to sell a large block of provincial bonds, which were included in long-term investments, and some land that had been purchased for expansion, which was included in capital assets. Management proposes including the bonds and land as current assets pending disposition. Such inclusion would increase the current ratio to 2.2:1. Prairie Bank and your client have not enjoyed cordial relations of late, and you have been advised by Avril Chui, the manager of Prairie Bank's Saskatoon branch, that the bank is "looking forward to receiving the audited statements because we are concerned that SBP has been having problems."
REQUIRED
a. Draft the memo to your partner outlining the problem.
b. Draft the auditor's report.