4. Wallace Andrews, the audit manager for the Sunset Electronics engagement, read the minutes of a board of directors meeting held on January 17, 2002. The directors had met primarily to discuss two matters: the expansion of the warehouse facility and damage to Store Two caused by an electrical fire on January 5, 2002. At this meeting, Basher Omar, president of Sunset Electronics, stated that the construction was progressing as expected and should be completed during March at a cost of approximately $220,000. He also reported that an electrical malfunction in Store Two had started a small fire on the eveninl of January 5. Actual fire damage was limited but water and heavy smoke had caused over $40,000 in inventory losses. Basher Omar indicated that the company's insurance would cover between 60% and 80% of this amount. As a final action in the meeting, the board of directors declared a cash dividend of $8,000 to be paid to shareholders on January 31 ,2002. The company is a privately owned company in which Mr. Basher Omar owns 30% of the shares and privately _ is the company's CEO.

Question # 1: The minutes of the board of directors meeting mentions three events that occurred in 2002: the continuing construction of the warehouse, the fire damage, and the declaration of a cash dividend. How would each affect the 2001 financial statements? How do you think each of these may affect the auditors opinion? Explain the possible different opinions and the evidence the auditor may use to support each opinion. Your answer MUST be detailed and well explained.