$3-9$ Drafting an Audit Report

On March $17,2008,$ Ross, Sandler & Co$.,$ LLP$,$ completed an audit of The Fairfax Corporation's December $31,2007,$ financial statements. The firm issued an unqualified opinion. Because of a scope limitation arising from the inability to observe the January $1,2006,$ physical inventory, the predecessor auditors, Smith, Ellis & Co$.,$ issued a report that contained an unqualified opinion on the December $31,2006,$ balance sheet and a qualified opinion on the statements of income, retained earnings, and cash flows for the year then ended. The management of The Fairfax Corporation will present comparative $(2007$ and $2006)$ financial statements in their annual report.

Required: Prepare an audit report assuming the March $1,2007,$ report of Smith, Ellis & Co$.$ is not presented.

$($AICPA Adapted$)$