The auditor's report below was drafted by Smith, a staff accountant at the firm of Wong & Wilson, PAs, at the completion of the audit of the financial statements of PPC Ltd., a publicly held company, for the year ended March 31, 20X3. 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, Smith considered the following:

• During the fiscal year, PPC changed its amortization method for capital assets. The engagement partner concurred with this change in accounting principles and its justification, and Smith included an explanatory paragraph in the auditor's report.

• The 20X3 statements were affected by an uncertainty concerning a lawsuit, the outcome of which cannot currently be estimated. Smith has included an explanatory paragraph in the auditor's report.

• The financial statements for the year ended March 31, 20X2, are to be presented for comparative purposes. Wong & Wilson had previously audited these statements and expressed an unqualified opinion.

The report that Smith drafted appears below:

Independent Auditor's Report To the Board of Directors of PPC Ltd.:

We have audited the accompanying balance sheet of PPC Ltd., as of March 31, 20X3 and 20X2, and statements of income and retained earnings for the year then ended. These financial statements are the responsibility of the company's management.

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 fairly presented. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a basis for determining whether any material modifications should be made to the accompanying financial statements.

As discussed in Note X to the financial statements, the company changed its method of computing amortization in fiscal 20X3. In our opinion, except for the accounting change, with which we concur, the financial statements referred to above present fairly, in all material respects, the financial position of PPC Ltd. as of March 31, 20X3, and the results of its operations for the year then ended in conformity with generally accepted accounting principles.

As discussed in Note Y to the financial statements, the company is a defendant in a lawsuit alleging infringement of certain copyrights. The company has filed a counteraction, and preliminary hearings on both actions are in progress. 

Accordingly, any provision for liability is subject to adjudication of this matter.

Wong & Wilson, PAs May 5, 20X3 

Required:

Identify the deficiencies in the order in which they appear in the auditor's report as drafted by Smith. Do not redraft the report.