Day, a small manufacturing company, has appointed you to make an audit and issue an opinion for the 19X9 calendar year. In January 19X9, the nine shareholders (all individuals) elected to be taxed as a small business corporation for 19X9 and later years under certain sections of the IRS Code. In brief, these sections provide that where an election is made, the shareholders include in their own income for tax purposes the current taxable income of the corporation, both the part which is distributed and that which is not. In the course of your 19X9 audit, you did not uncover any item which would preclude your issuing an unqualified report. As a result of the election to have the federal income tax on the corporate income paid directly by its stockholders, the following questions are raised: 

1. Should note disclosure be made of the election by the corporation shareholders? Explain. 

2. What information should be given to each stockholder at year-end to facilitate the preparation of the tax return? Explain. 

3. Explain the type of auditor's report you would issue under these circumstances.