Question: You have completed your audit of Khim Inc and its

You have completed your audit of Khim Inc. and its consolidated subsidiaries for the year ended December 31, 2011, and are satisfied with the results of your examination. You have examined the financial statements of Khim for the past three years. The corporation follows IFRS and is now preparing its annual report to shareholders. The report will include the consolidated financial statements of Khim and its subsidiaries, and your short-form auditor’s report. During your audit, the following matters came to your attention.
1. A vice-president who is also a shareholder resigned on December 31, 2011, after an argument with the president. The vice-president is soliciting proxies from shareholders and expects to obtain sufficient proxies to gain control of the board of directors so that a new president will be appointed. The president plans to have a note prepared that would include information of the pending proxy fight, management’s accomplishments over the years, and an appeal by management for the support of shareholders.
2. The corporation decides in 2011 to adopt the straight-line method of depreciation for plant equipment. The straight-line method will be used for new acquisitions and for previously acquired plant equipment that was being depreciated on an accelerated basis.
3. The Canada Revenue Agency is currently examining the corporation’s 2009 federal income tax return and is questioning the amount of a deduction claimed by the corporation’s domestic subsidiary for a loss sustained in 2009. The examination is still in process, and any additional tax liability is indeterminable at this time. The corporation’s tax counsel believes that there will be no substantial additional tax liability.
(a) Prepare the notes, if any, that you would suggest for each of the items.
(b) For each item that you decided did not require note disclosure, explain your reasons for not making the disclosure.
(AICPA adapted)

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