Your public accounting practice is located in a town of 15,000 people. Your work, conducted by you and two assistants, consists of compiling clients’ monthly statements and preparing income tax returns for individuals from cash data and partnership returns from books and records. You have a few corporate clients; however, service to them is limited to preparation of income tax returns and assistance in year-end closings where bookkeeping is deficient.
One of your corporate clients is a retail hardware store. Your work for this company has been limited to preparing the corporation income tax return from a trial balance submitted by the bookkeeper. On December 26, you receive a letter from the president of the corporation with the following request: We have made arrangements with the First National Bank to borrow $500,000 to finance the purchase of a complete line of appliances. The bank has asked us to furnish our auditor’s certified statement as of December 31, which is the closing date of our accounting year. The trial balance of the general ledger should be ready by January 10, which should allow ample time to prepare your report for submission to the bank by January 20. In view of the importance of this certified report to our financing program, we trust you will arrange to comply with the foregoing schedule.
From a theoretical viewpoint, discuss the difficulties that are caused by such a short-notice audit request.