$3-8$ Drafting an Opinion Paragraph

Sturdy Corporation owns and operates a large office building in a desirable section of New York City's financial district. For many years the management of Sturdy Corporation has

$($a$)$ written$-$up building accounts to appraisal values and $($b$)$ accounted for depreciation expense on the basis of appraised values. Wyley, the successor auditor, was engaged to audit Sturdy's financial statements for the year ended December $31,2008.$ After completing the audit, Wyley concluded that, consistent with prior years, an adverse opinion would have to be issued because of the materiality of the apparent departure from historical cost.

Required:

$1.$ Describe in detail what Wyley should include in an explanatory paragraph.

$2.$ Draft the opinion paragraph.

$($AICPA Adapted$)$

$3-9$ Drafting an Audit Report

On March $17,2008,$ Ross, Sandler & Co$.,$ LLP$,$ completed an audit of The Fairfax Corporation's December $31,2007,$ financial statements. The firm issued an unqualified opinion. Because of a scope limitation arising from the inability to observe the January $1,2006,$ physical inventory, the predecessor auditors, Smith, Ellis & Co$.,$ issued a report that contained an unqualified opinion on the December $31,2006,$ balance sheet and a qualified opinion on the statements of income, retained earnings, and cash flows for the year then ended. The management of The Fairfax Corporation will present comparative $(2007$ and $2006)$ financial statements in their annual report.

Required: Prepare an audit report assuming the March $1,2007,$ report of Smith, Ellis & Co$.$ is not presented.

$($AICPA Adapted$)$