Patel, CPA, has completed the audit of the financial statements of Bellamy Corporation as of and for

Question:

Patel, CPA, has completed the audit of the of Bellamy as of and for the year ended December 31, 2011. Patel also audited and reported on the Bellamy for the prior year. Patel drafted the following report for 2011.

We have audited the and statements of income and retained earnings of Bellamy as of December 31, 2011. 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 are free of misstatement.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the referred to above present fairly the financial position of Bellamy as of December 31, 2011, 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.
Patel, CPA
(Signed)
Other Information
• Bellamy is presenting comparative Bellamy does not wish to present a statement of cash flows for either year.
• During 2011, Bellamy changed its method of accounting for long-term construction contracts and properly reflected the effect of the change in the current year's and restated the prior year's statements. Patel is satisfied with Bellamy's justification for making the change. The change is discussed in footnote 12.
• Patel was unable to perform normal confirmation procedures, but alternative procedures were used to satisfy Patel as to the existence of the receivables.
• Bellamy is the defendant in a litigation, the outcome of which is highly uncertain. If the case is settled in favor of the plaintiff, Bellamy will be required to pay a substantial amount of cash, which might require the sale of certain fixed assets. The litigation and the possible effects have been properly disclosed in footnote 11.
• Bellamy issued on January 31, 2010, 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, 2015. Bellamy declined to disclose this essential data in the footnotes to the Identify and explain any items included in "Other Information" that need not be part of the auditor's report.
b. Explain the deficiencies in Patel's report as drafted.*

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