Chow, a PA, is assisting his client, Western Resources Inc., a closely held company, that is seeking to secure a new line of credit from a local bank. Chow has performed a review of the company’s financial statements for several years and always issued a review engagement report without modification or reservation. However, the bank is not satisfied with the reviewed financial statements and is particularly concerned about the value of the client’s accounts receivable, which will be pledged as collateral for the new line of credit.
The CEO of Western Resources has asked Chow to perform his normal review of the financial statements this year, as well as confirm a large sample (to be jointly selected by the CEO and Chow) of the company’s accounts receivable at year end directly with debtors. He then wants Chow to write a special report to the bank describing his findings with respect to the confirmation of receivables. Chow agrees to perform both of these services for the client for a fixed fee of $15,000, which is about 50 percent more than the usual fee for performing a review.
REQUIRED
Discuss reporting issues with respect to the new engagement.