Auditors report to the president and management of

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Unformatted text preview: holders, potential investors, and the general public. The client has a calendar year-end. For the most recent audit, the auditor completed all significant fieldwork on March 5, 2008 and issued the audit report on March 16, 2008. During 2007, EPM changed its method of depreciating long-term assets and properly reflected the effect of the change in the current year’s financial statements, restated the prior year’s financial statements, and properly discussed the change in a footnote (Note 4) to those statements. The auditors are satisfied that the change was preferable. Required: Consider all the facts given and rewrite the complete auditor’s report, including report title, address, body of report, name of firm, and audit report date. 1-153 Answer: Independent Auditor’s Report To the shareholders of EPM, Inc. We have audited the accompanying balance sheets of EPM, Inc., as of December 31, 2007 and 2006, and the related statements of income, retained earnings, and cash flows for the years then ended. 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of EPM, Inc., as of December 31, 2007 and 2006, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. As discussed in Note 4 to the financial statements, EPM, Inc., changed its method of computing depreciation in 2007. Harrington and Perry, LLP March 5, 2008 1-154 97. challenging On April 14, 2008, your CPA firm completed the fieldwork for the audit of O’Malley Corporation’s financial statements for the year ended December 31, 2007. O’Malley is a privately held company. Last year, your firm expressed an unqualified opinion on O’Malley’s 2006 financial statements. Barrett and O’Connor, CPAs, performed the audit of the December 31, 2007 and 2006 financial statements of Tom’s Supply Company, a consolidated subsidiary of O’Malley’s. Barrett and O’Connor completed the fieldwork on February 25, 2008, and issued its unqualified opinion on Tom’s Supply Company on March 2, 2008. Tom’s statements reflect total assets of $950,000 and $900,000 as of December 31, 2007 and 2006, respectively, and revenues of $1,845,000 and $1,650,000 for the years then ended. During your audit, you obtained the following information which does not appear in the footnotes to O’Malley’s 2007 financial statements: During 2007, O’Malley changed its method of valuing inventory from the First-In-First-Out method to the Last-In-First-Out method. O’Malley’s management believes the change provides a better matching of revenues and expenses, with which you concur. The change reduced ending inventory in 2007 by $248,000 and net income by $129,000. The effect of the change on 2007 is considered material, but not highly material. The effect of the change on prior years is immaterial. Required: Prepare the shared audit report to accompany O’Malley’s 2007-2006 comparative financial statements. Include the report title, address, body, date, and your signature. 1-155 Answer: Independent Auditor’s Report To the Board of Directors of O’Malley Corporation: We have audited the accompanying consolidated balance sheets of O’Malley Corporation as of December 31, 2007 and 2006 and the related consolidated statements of income, retained earnings, and cash flows for the years then ended. 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 did not audit the financial statements of Tom’s Supply Company, a consolidated subsidiary, which statements reflect total assets of $950,000 and $900,000 as of December 31, 2007 and 2006, respectively, and total revenues of $1,845,000 and $1,650,000 for the years then ended. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Tom’s Supply Company, is based solely on the report of the other auditors. We conducted our audits in accordance with aud...
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This note was uploaded on 02/04/2014 for the course ACCOUNTING 211 taught by Professor Alikapur during the Fall '13 term at American University of Sharjah.

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