Brown & Brown, CPAs, was engaged by the board of directors of Cook Indus¬ tries, Inc. to audit Cook’s calendar year 19X5 financial statements. The following report was drafted by an audit assistant at the completion of the audit. It was submitted to Brown, the partner with client responsibility for review on March 7, 19X6, the date of the completion of field work. Brown has reviewed matters thoroughly and properly concluded that an adverse opinion was appropriate.

Brown also became aware of a March 14, 19X6 subsequent event which the client has properly disclosed in the notes to the financial statements. Brown wants responsibility for subsequent events to be limited to the specific event referred to in the applicable note to the client’s financial statements.
The financial statements of Cook Industries, Inc., for the calendar year 19X4 were audited by predecessor auditors who also expressed an adverse opinion and have not reissued their report. The financial statements for 19X4 and 19X5 are presented in comparative form.

To the President of Cook Industries, Inc.
We have audited the financial statements of Cook Industries, Inc. for the year ended December 31, 19X5. 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 audit.
We conducted our audit 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 presentation. We believe that our audit provides a reasonable basis for our opinion. As discussed in Note K to the financial statements, the Company has properly disclosed a subsequent event dated March 14, 19X6.

As discussed in Note G to the financial statements, the Company carries its property and equipment at appraisal values, and provides depreciation on the basis of such values. Further, the company does not provide for income taxes with respect to differences between financial income and tax¬ able income arising because of the use, for income tax purposes, of the installment method of reporting gross profit from certain types of sales.
In our opinion, the financial statements referred to above do not present fairly the financial position of Cook Industries, Inc. as of December 31, 19X5, or the results of its operations for the year then ended.

Required:
Identify the deficiencies in the draft of the proposed report. Do not redraft the report or discuss corrections.

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Accountants Report