A staff auditor of Erwachen & Diamond, CPAs, has prepared the following draft of an audit report on cash basis financial statements:

Accountant’s Report to the Shareholders of Halon Company:

We have audited the accompanying balance sheets and the related statement of income as of December 31, 2003 and 2002. 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 audits.

We conducted our audits in accordance with generally accepted accounting principles. Those principles require that we plan and perform the audit to obtain assurance about whether the financial statements are free of misstatement.

An audit includes examining evidence supporting the amounts in the financial statements. An audit also includes assessing the accounting principles used and 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.

As described in Note 13, these financial statements were prepared on the basis of cash receipts and disbursements.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Halon Company as of December 31, 2003, and the results of operations for the year then ended in accordance with generally accepted accounting principles.

/s/ Donald Diamond, CPA 

February 15, 2004 

Required:

Identify any deficiencies in the report, and explain why they are deficiencies.