You recently were engaged to audit the financial statements of P Company, a company that previously has not been audited. During your work, you learn that three years ago a serious fire destroyed most of the company's accounting records, including those substantiating the cost of its property and equipment. You physically observe the major items of property and equipment included in the financial statements, but you are unable to determine when and at what price most of it had been acquired. Property and equipment is a material item in the balance sheet.

a. Describe the reporting problem in the case.

b. Draft an audit report covering the matter, assuming that you have no other reservations about the financial statements.

c. If your report is qualified, how long do you anticipate the same qualification will continue?