Question 1 Maha, CPA, has completed the audit of the financial statements of Birkin Corporation as...
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Question 1 Maha, CPA, has completed the audit of the financial statements of Birkin Corporation as of and for the year ended December 31, 2019. Maha also audited and reported on the Birkin financial statements for the prior year. Maha drafted the following report for 2019. "We have audited the balance sheet and statements of income and retained earnings of Birkin Corporation as of December 31, 2019. In our opinion, the financial statements referred to above present fairly the financial position of Birkin Corporation as of December 31, 2019, and the results of its operations for the year then ended in conformity with generally accepted auditing standards, applied on a basis consistent with those of the preceding year. We conducted our audit in accordance with generally accepted accounting standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of misstatement. We believe that our audits provide a reasonable basis for our opinion. " Maha, CPA (Signed) Other Information: Birkin is a private corporation and presents comparative financial statements. During 2019, Birkin acquired Stockard Inc., and the effects of that transaction are reflected in the current year's financial statements. Information about this transaction is disclosed in footnote 12. Maha was unable to perform normal accounts receivable confirmation procedures for accounts that are material, but not pervasive, to the financial statements. Unfortunately, Maha was not able to perform alternative procedures to support the existence of the receivables. Birkin Corporation is the defendant in litigation where there is a reasonable possibility that Birkin may be required to pay a substantial amount of cash, which might require the sale of certain fixed assets. Because management does not want to provide any information that the plaintiff might use against Birkin, the case is not discussed in the financial statements. Birkin issued debentures on January 31, 2018, in the amount of $10 million. The funds obtained from the issuance were used to finance the expansion of plant facilities. The debenture agreement restricts the payment of future cash dividends to earnings after December 31, 2023. Birkin has disclosed this in the footnotes to the financial statements. Required: a. Identify and explain any items included in "Other Information" that need not be part of the auditor's report. b. Explain the deficiencies in Maha's report as drafted. Question 1 Maha, CPA, has completed the audit of the financial statements of Birkin Corporation as of and for the year ended December 31, 2019. Maha also audited and reported on the Birkin financial statements for the prior year. Maha drafted the following report for 2019. "We have audited the balance sheet and statements of income and retained earnings of Birkin Corporation as of December 31, 2019. In our opinion, the financial statements referred to above present fairly the financial position of Birkin Corporation as of December 31, 2019, and the results of its operations for the year then ended in conformity with generally accepted auditing standards, applied on a basis consistent with those of the preceding year. We conducted our audit in accordance with generally accepted accounting standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of misstatement. We believe that our audits provide a reasonable basis for our opinion. " Maha, CPA (Signed) Other Information: Birkin is a private corporation and presents comparative financial statements. During 2019, Birkin acquired Stockard Inc., and the effects of that transaction are reflected in the current year's financial statements. Information about this transaction is disclosed in footnote 12. Maha was unable to perform normal accounts receivable confirmation procedures for accounts that are material, but not pervasive, to the financial statements. Unfortunately, Maha was not able to perform alternative procedures to support the existence of the receivables. Birkin Corporation is the defendant in litigation where there is a reasonable possibility that Birkin may be required to pay a substantial amount of cash, which might require the sale of certain fixed assets. Because management does not want to provide any information that the plaintiff might use against Birkin, the case is not discussed in the financial statements. Birkin issued debentures on January 31, 2018, in the amount of $10 million. The funds obtained from the issuance were used to finance the expansion of plant facilities. The debenture agreement restricts the payment of future cash dividends to earnings after December 31, 2023. Birkin has disclosed this in the footnotes to the financial statements. Required: a. Identify and explain any items included in "Other Information" that need not be part of the auditor's report. b. Explain the deficiencies in Maha's report as drafted.
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