Brown & Brown, CPAs, was engaged by the board of directors of Cook Industries, Inc., to audit Cook's calendar year 20X8 financial statements. The following report was drafted by an audit assistant at the completion of the engagement. It was submitted to Brown, the engagement partner, for review on March 7, 20X9, the date of the completion of fieldwork. Brown has reviewed matters thoroughly and properly concluded that an adverse opinion was appropriate.

Brown also became aware of a March 14, 20X9, subsequent event which the client has properly disclosed in the notes to the financial statements. Brown wants responsibility for subsequent events to be limited to the specific event referred to in the applicable note to the client's financial statements.

The financial statements of Cook Industries, Inc., for the calendar year \(20 \mathrm{X} 7\) were audited by predecessor auditors who also expressed an adverse opinion and have not reissued their report. The financial statements for \(20 \mathrm{X} 7\) and 20X8 are presented in comparative form.

Required:

Identify the deficiencies in the draft of the proposed report. Do not redraft the report or discuss corrections.

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To the President of Cook Industries, Inc.: We have audited the accompanying balance sheet of Cook Industries, Inc.. as of December 31, 20X8, and the related statements of income, retained earnings, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. As discussed in Note K to the financial statements, the Company has properly disclosed a subse- quent event dated March 14, 20X9. We conducted our audit 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 of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures (continued)