You are the senior on the audit of Kootenay Real Estate Holdings Ltd., a company listed on the Canadian Ven¬ ture Exchange whose year end is December 31. As you com¬ plete your audit and prepare your auditor's report, you learn that a U.S. subsidiary, Kootenay (U.S.), Inc., whose year end is September 30, has been subjected to a series of foreclosures over the past four months on properties located in Texas. Although you are concerned that the continued viability of Kootenay (U.S.) may be threatened, the management of the Canadian parent does not want to delay the issue of the con¬ solidated financial statements. Management will not permit you to request the auditors of the U.S. firm to follow up on your discovery.

Required Draft the auditor's report you deem to be appropriate for the year ended December 31, 2001. Consider Kootenay (U.S.), Inc., to be material to the Canadian parent. The audit was completed March 9, 2002.