Question
Audit Report Deficiencies: Adverse Opinion. The board of directors of Cook Industries Inc. (an issuer) engaged Brown & Brown, CPAs, to audit the financial statements
Audit Report Deficiencies: Adverse Opinion. The board of directors of Cook Industries Inc. (an issuer) engaged Brown & Brown, CPAs, to audit the financial statements for the year ended December 31, 2020.
Required: Identify the deficiencies in the following draft of the report and provide at least 5 deficiencies. Do not rewrite the report.
Report of Independent Registered Public Accounting Firm To the President of Cook Industries Inc.:
Opinion on the Financial Statements
We have audited the accompanying financial statements of Cook Industries, Inc. (the Company) as of December 31, 2020, and the related notes (collectively referred to as the financial statements). We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB) and believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the period ended December 31, 2020, in accordance with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the PCAOB, the Companys internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission; however, because of the matter discussed in the Accounting for Property and Equipment section, we are unable to express an opinion on the Companys internal control over financial reporting.
Basis for Opinion Our responsibility is to express an opinion on the Companys financial statements based on our audit. We are a public accounting firm registered with the PCAOB.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
Accounting for Property and Equipment As discussed in Note G to the financial statements, the Company carries its property and equipment at appraisal values and provides depreciation on the basis of such values. Furthermore, the Company does not provide for income taxes with respect to differences between financial income and taxable Income arising from the use, for income tax purposes, of the installment method of reporting gross profit from certain types of sales.
Critical Audit Matters [Assume critical audit matters are appropriately documented and reported]
Brown & Brown, CPAs
We have served as the Companys auditor since 2001 Los Angeles, CA March 3, 2021
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