Items 1 through 16 represent a series of unrelated statements, questions, excerpts, and comments taken from various parts of an auditors working paper file. Below is a list of the likely sources of the statements, questions, excerpts, and comments. Select, as the best answer for each item, the most likely source. Select only one source for each item. A source may be selected once, more than once, or not at all.

A. Practitioners report on managements assertion about an entitys compliance with specified requirements.

B. Auditors communications on significant deficiencies and material weakness.

C. Audit inquiry letter to legal counsel.

D. Lawyers response to audit inquiry letter.

E. Audit committees communication to the auditor.

F. Auditors communication to those charged with governance (other than with respect to significant deficiencies and material weakness).

G. Report on the application of accounting principles.

H. Auditors engagement letter.

I. Letter for underwriters.

J. Accounts receivable confirmation request.

K. Request for bank cutoff statement.

L. Explanatory paragraph of an auditors report on financial statements.

M. Partners engagement review notes.

N. Management representation letter.

O. Successor auditors communication with predecessor auditor.

P. Predecessor auditors communication with successor auditor.

Items List of Sources

1.

During our audit we discovered evidence of the companys failure to safeguard inventory from loss, damage, and misappropriation.

2.

The company considers the decline in value of equity securities classified as available-for-sale to be temporary.

3.

There have been no communications from regulatory agencies concerning noncompliance with or deficiencies in financial reporting practices.

4.

It is our opinion that the possible liability to the company in this proceeding is nominal in amount.

5.

As discussed in Note 4 to the financial statements, the company experienced a net loss for the year ended July 31, 2011, and is currently in default under substantially all of its debt agreements. In addition, on September 25, 2011, the company filed a prenegotiated voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code. These matters raise substantial doubt about the companys ability to continue as a going concern.

6.

During the year under audit, we were advised that management consulted with Gonzales & Ramirez, CPAs. The purpose of this consultation was to obtain another CPA firms opinion concerning the companys recognition of certain revenue that we believe should be deferred to future periods. Gonzales & Ramirezs opinion was consistent with our opinion, so management did not recognize the revenue in the current year.

7.

The company believes that all material expenditures that have been deferred to future periods will be recoverable.

8.

Our use of professional judgment and the assessment of audit risk and materiality for the purpose of our audit mean that matters may have existed that would have been assessed differently by you. We make no representation as to the sufficiency or appropriateness of the information in our working papers for your purposes.

9.

Indicate in the space provided below whether this information agrees with your records. If there are exceptions, please provide any information that will assist the auditor in reconciling the difference.

10.

Blank checks are maintained in an unlocked cabinet along with the check-signing machine. Blank checks and the check-signing machine should be locked in separate locations to prevent the embezzlement of funds.

11.

The company has insufficient expertise and controls over the selection and application of accounting policies that are in conformity with GAAP.

12.

The timetable set by management to complete our audit was unreasonable considering the failure of the companys personnel to complete schedules on a timely basis and delays in providing necessary information.

13.

Several employees have disabled the antivirus detection software on their PCs because the software slows the processing of data and occasionally rings false alarms. The company should obtain antivirus software that runs continuously at all system entry points and that cannot be disabled by unauthorized personnel.

14.

In connection with an audit of our financial statements, please furnish to our auditors a description and evaluation of any pending or probable litigation against our company of which you are aware.

15.

The company has no plans or intentions that may materially affect the carrying value or classification of assets and liabilities.

16.

In planning the sampling application, was appropriate consideration given to the relationship of the sample to the assertion and to planning materiality?