An assistant drafted the following auditors' report at the completion of the audit of Cramdon Inc. on March 5, 2018. The partner in charge of the engagement has decided the opinion on the 2017 financial statements should be modified only with reference to the change in the method of computing the cost of inventory. In 2016, Cramdon used the next-in, first-out (NIFO) method, which is not permissible under GAAP, but in 2017 changed to FIFO and restated the 2016 financial statements. The auditors' report on the 2016 financial statements was prepared by the same firm and dated March 5, 2017.

Independent Auditor's Report

To the Board of Directors of Cramdon Inc.:

We have audited the accompanying financial statements of Cramdon Inc. as of December 31, 2017 and 2016, and the related notes to the financial statements.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

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 from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, based upon the following, the financial statements referred to above present fairly, in all material respects, the financial position of Cramdon Inc. as of December 31, 2017, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America, consistently applied, except for the changes in the method of computing inventory cost as described in Note 7 to the financial statements.

Other Matter

As discussed in Note 7 to the financial statements, the company changed its method of accounting for inventory cost from NIFO to FIFO. The 2016 financial statements have been restated to reflect this change in accordance with accounting principles generally accepted in the United States of America. Accordingly, our present opinion on the 2016 financial statements, as presented herein, is different from the opinion we expressed in our previous report.

March 5, 2018

Required:

Identify the deficiencies and errors in the draft report and write an explanation of the reasons they are errors and deficiencies. Do not rewrite the report?