Statements Not in Conformity with Financial Accounting Standards. Jan Rjady, Akuntan Publik, is engaged in the examination of the financial statements of Soadwao Company of Bandung, Indonesia, and its recently acquired subsidiary, Fasaff Company. In acquiring Fasaff during 20X1, Soadwao exchanged a large number of its shares of common stock for 90 per cent of the outstanding common stock of Fasaff in a transaction that was accounted for as pooling of interests. Soadwao is now preparing the annual report to shareholders and proposes to include in the report combined financial statements for the year ended 31 December 20X1, with a footnote describing its exchange of stock for that of Fasaff.

Soadwao also proposes to include in its report the financial statements of the previous year as they appeared in Soadwao’s annual report along with a five-year financial summary from Soadwao’s prior annual reports, all of which had been accompanied by Rjady’s unqualified auditor's opinion.

Required

A. Discuss whether the financial reporting treatment proposed by Soadwao, Inc. for the 20X1 annual report would be on a consistent basis.

B. Write the auditor’s report which should accompany the financial statements as proposed by Soadwao, Inc. for inclusion in the annual report.