The auditor's report below was drafted by Miller, a staff accountant of Pell \& Pell, CPAs, at the completion of the audit of the consolidated financial statements of Bond Co. for the year ended July 31, 19X3. The report was submitted to the engagement partner who reviewed the audit working papers and properly concluded that an unqualified opinion should be issued. In drafting the report, Miller considered the following:

- Bond's consolidated financial statements for the year ended July 31, 19X2, are to be presented for comparative purposes. Pell previously audited these statements and appropriately rendered an unmodified report.

- Bond has suffered recurring losses from operations and has adequately disclosed these losses and management's plans concerning the losses in a note to the financial statements. Although Bond has prepared the financial statements assuming it will continue as a going concern, Miller has substantial doubt about Bond's ability to continue as a going concern.

- Smith \& Smith, CPAs, audited the financial statements of BC. Services, Inc., a consolidated subsidiary of Bond, for the year ended July 31, 19X3. The subsidiary's financial statements reflected total assets and revenues of 15 percent and 18 percent, respectively, of the consolidated totals. Smith expressed an unqualified opinion and furnished Miller with a copy of the auditor's report. Smith also granted permission to present the report together with the principal auditor's report. Miller decided not to present Smith's report with that of Pell, but instead to make reference to Smith.

{Independent Auditor's Report}

We have audited the consolidated balance sheets of Bond Co. and subsidiaries as of July 31, 19X3 and 19X2, and the related consolidated statements of income and retained earnings for the years then ended. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of BC Services, Inc., a wholly owned subsidiary. Those statements were audited by Smith \& Smith, CPAs, whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for BC Services, Inc., is based solely on the report of Smith \& Smith.

We conducted our audits in accordance with generally accepted auditing standards. 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 assessing control risk, 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, based on our audits and the report of Smith \& Smith, CPAs, the consolidated financial statements referred to above present fairly, in all material respects except for the matter discussed below, the financial position of Bond Co. as of July 31, 19X3 , and 19X2, and the results of its operations for the years then ended.

The accompanying consolidated financial statements have been prepared with the disclosure in Note 13 that the company has suffered recurring losses from operations. Management's plans in regard to those matters are also discussed in Note 13. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Pell \& Pell, CPAs November 4, 19X3

{Required:}

Identify the deficiencies in the auditor's report as drafted by Miller. Group the deficiencies by paragraph and in the order in which the deficiencies appear. Do not redraft the report.