Patel, CPA, has completed the audit of the financial statements of Bellamy Corporation as of and for the year ended December 31, 2019. Patel also audited and reported on the Bellamy financial statements for the prior year. Patel drafted the following report for 2019.

We have audited the balance sheet and statements of income and retained earnings of Bellamy Corporation as of December 31, 2019.

In our opinion, the financial statements referred to above present fairly the financial position of Bellamy Corporation as of December 31, 2019, and the results of its operations for the year then ended in conformity with generally accepted auditing standards, applied on a basis consistent with those of the preceding year.

We conducted our audit in accordance with generally accepted accounting standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of misstatement. We believe that our audits provide a reasonable basis for our opinion.

Other Information

bullet	Bellamy is a private corporation and is presenting comparative financial statements.
bullet	During 2019, Bellamy acquired Stockard Inc. and the effects of that transaction are reflected in the current year financial statements. Information about this transaction is disclosed in footnote 12.
bullet	Patel was unable to perform normal accounts receivable confirmation procedures for accounts that are material, but not pervasive, to the financial statements. Unfortunately, Patel was not able to perform alternative procedures to support the existence of the receivables.
bullet	Bellamy Corporation is the defendant in litigation where there is a reasonable possibility that Bellamy may be required to pay a substantial amount of cash, which might require the sale of certain fixed assets. Because management does not want to provide any information that the plaintiff might use against Bellamy, the case is not discussed in the financial statements.
bullet	Bellamy issued debentures on January 31, 2018, in the amount of $10 million. The funds obtained from the issuance were used to finance the expansion of plant facilities. The debenture agreement restricts the payment of future cash dividends to earnings after December 31, 2023. Bellamy has disclosed this in the footnotes to the financial statements.

Explanation of why information need not be included in the audit report:

a.	Stating the type of corporation and presenting comparative financial statements are not standard requirements in the auditor's report.
b.	There would be no requirement to include an explanatory paragraph that highlights any recent acquisitions that are disclosed in the financial statements.
c.	The fact that normal receivable confirmation procedures were not used should not be disclosed since the auditor was able to satisfy him or herself through alternative audit procedures.
d.	The lawsuit need not be discussed in the report since it has been included in a footnote.
e.	Patel may or may not choose to add an explanatory paragraph about the issuance of the debentures, which is disclosed in the footnotes. There would be no requirement to include that as an explanatory paragraph.

Needed in Explanation if Auditor's not needed in Report? report Bellamy is a private corporation and is presenting comparative financial statements. V . During 2019, Bellamy acquired Stockard Inc. and the effects of that transaction are reflected in the current year financial statements. Information about this transaction is disclosed in footnote 12. Patel was unable to perform normal accounts receivable confirmation procedures for accounts that are material, but not pervasive, to the financial statements. Unfortunately, Patel was not able to perform alternative procedures to support the existence of the receivables. Bellamy Corporation is the defendant in litigation where there is a reasonable possibility that Bellamy may be required to pay a substantial amount of cash, which might require the sale of certain fixed assets. Because management does not want to provide any information that the plaintiff might use against Bellamy, the case is not discussed in the financial statements Bellamy issued debentures on January 31, 2018, in the amount of $10 million. The funds obtained from the issuance were used to finance the expansion of plant facilities. The debenture agreement restricts the payment of future cash dividends to earnings after December 31, 2023. Bellamy has disclosed this in the footnotes to the financial statements. Requirement b. Explain the deficiencies in Patel's report as drafted. Identify which of the following are deficiencies in Patel's report as drafted. (Select all that apply.) 01. Additional paragraph(s) should be included that describe the limitation on the scope related to audit testing for accounts receivable, and the failure to include disclosure of the loss contingency related to pending litigation. 3. There is no mention in the report that Bellamy Corporation is a defendant in a litigation. 5. The audit report is neither addressed nor dated and it does not contain a title. 2. There is no separate auditor's responsibility section that defines reasonable assurance and states the responsibilities of the auditor in conducting an audit in accordance with GAAS. 4. The opinion paragraph includes the words "generally accepted auditing standards" rather than the phrase "accounting principles generally accepted in the United States of America." 6. The opinion paragraph states that accounting principles were consistent with those used in the prior year. The opinion paragraph should make no reference to consistency. 8. The opinion paragraph excludes the required phrase, "in all material respects." 10. There are comparative statements, but the audit report identifies and deals with only the current year's financial statements. An opinion must also be included for the prior period financial statements 12. There is no mention in the report that Bellamy is a private corporation 14. The audit was made in accordance with auditing standards generally accepted in the United States of America rather than generally accepted accounting standards. 07. There is no separate management's responsibility section that states the responsibilities of management 9. The balance sheet is as of a specific date, whereas the income statement and the statement of retained earnings are for a period of time. The introductory paragraph should identify the period of time (usually one year). 11. The word material is excluded from the statement that should be part of the auditor's responsibility (free of material misstatement). 13. The opinion should be qualified rather than being unmodified. 15. The basis for opinion paragraph needs to be expanded to state that the auditor is independent and has fulfilled their ethical responsibilities in accordance with relevant ethical requirements. The sentence related to obtaining reasonable assurance should be included in a separate section on the auditor's responsibilities. Needed in Explanation if Auditor's not needed in Report? report Bellamy is a private corporation and is presenting comparative financial statements. V . During 2019, Bellamy acquired Stockard Inc. and the effects of that transaction are reflected in the current year financial statements. Information about this transaction is disclosed in footnote 12. Patel was unable to perform normal accounts receivable confirmation procedures for accounts that are material, but not pervasive, to the financial statements. Unfortunately, Patel was not able to perform alternative procedures to support the existence of the receivables. Bellamy Corporation is the defendant in litigation where there is a reasonable possibility that Bellamy may be required to pay a substantial amount of cash, which might require the sale of certain fixed assets. Because management does not want to provide any information that the plaintiff might use against Bellamy, the case is not discussed in the financial statements Bellamy issued debentures on January 31, 2018, in the amount of $10 million. The funds obtained from the issuance were used to finance the expansion of plant facilities. The debenture agreement restricts the payment of future cash dividends to earnings after December 31, 2023. Bellamy has disclosed this in the footnotes to the financial statements. Requirement b. Explain the deficiencies in Patel's report as drafted. Identify which of the following are deficiencies in Patel's report as drafted. (Select all that apply.) 01. Additional paragraph(s) should be included that describe the limitation on the scope related to audit testing for accounts receivable, and the failure to include disclosure of the loss contingency related to pending litigation. 3. There is no mention in the report that Bellamy Corporation is a defendant in a litigation. 5. The audit report is neither addressed nor dated and it does not contain a title. 2. There is no separate auditor's responsibility section that defines reasonable assurance and states the responsibilities of the auditor in conducting an audit in accordance with GAAS. 4. The opinion paragraph includes the words "generally accepted auditing standards" rather than the phrase "accounting principles generally accepted in the United States of America." 6. The opinion paragraph states that accounting principles were consistent with those used in the prior year. The opinion paragraph should make no reference to consistency. 8. The opinion paragraph excludes the required phrase, "in all material respects." 10. There are comparative statements, but the audit report identifies and deals with only the current year's financial statements. An opinion must also be included for the prior period financial statements 12. There is no mention in the report that Bellamy is a private corporation 14. The audit was made in accordance with auditing standards generally accepted in the United States of America rather than generally accepted accounting standards. 07. There is no separate management's responsibility section that states the responsibilities of management 9. The balance sheet is as of a specific date, whereas the income statement and the statement of retained earnings are for a period of time. The introductory paragraph should identify the period of time (usually one year). 11. The word material is excluded from the statement that should be part of the auditor's responsibility (free of material misstatement). 13. The opinion should be qualified rather than being unmodified. 15. The basis for opinion paragraph needs to be expanded to state that the auditor is independent and has fulfilled their ethical responsibilities in accordance with relevant ethical requirements. The sentence related to obtaining reasonable assurance should be included in a separate section on the auditor's responsibilities