Please check my work!

"Opinion type" options:

"Report modifications" options (I don't believe this is all-inclusive):

Exhibits:

For each company, review the exhibits. Based on your review of the exhibits, determine the appropriate opinion type(s) by selecting from the option list provided. Up to two opinion types may be selected for each company, and the selections may be made in any order. In addition, select the appropriate report modification(s), also by selecting from the option list provided. Up to four report modifications may be used for each company, and the selections may be made in any order. Unmodified "Except for" qualified Adverse Disclaimer Select an option below Issue the independent auditor's report without modification Modify the introductory paragraph Modify the auditor's responsibility paragraph Omit the auditor's responsibility paragraph Modify the opinion paragraph Add an emphasis-of-matter paragraph preceding the opinion paragraph Add an emphasis-of-matter paragraph following the opinion paragraph \begin{tabular}{|c|c|c|c|} \hline & Company & Opinion Types & Report Modifications \\ \hline & \multirow{4}{*}{ Production Gurus } & \multirow[t]{2}{*}{ } & / \\ \hline & & & E \\ \hline 4 & & \multirow[t]{2}{*}{ } & \\ \hline 5 & & & \\ \hline \end{tabular} Red Barron Trucking Production Gurus Per discussion with John Doe, CFO, the company changed from the straight-line depreciation to units-of-production based on hours of utilization because the company thought this more accurately matched the revenue and expense of the machine rather than the straight-line method. This is because the company makes revenue with each produced unit. The companv accuratelv accounted for this Production Gurus Per discussion with John Doe, CFO, the company changed from the straight-line depreciation to units-of-production based on hours of utilization because the company thought this more accurately matched the revenue and expense of the machine rather than the straight-line method. This is because the company makes revenue with each produced unit. The company accurately accounted for this change prospectively, but it does have a material effect on the comparability of the financial statements. I added this explanation to WP 3315. Assisted Living Group I just received the attorney letter. Based on the attorney response, I believe that there is a reasonable possibility of a significant material loss related to the case of Fren v. Assisted Living Group; however, no amount can be estimated at this time. Red Barron Trucking I proposed the adjusting journal entry for the capitalization of the leases that the company is currently expensing as operating leases. Unfortunatelv manadement Red Barron Trucking I proposed the adjusting journal entry for the capitalization of the leases that the company is currently expensing as operating leases. Unfortunately, management has elected not to book the material adjusting journal entry and, therefore, is still showing those leases as an operating expense. Please let me know if you need any additional information. Thank you, Audit Senior From: manager@auditfirm.com Sent: February 10, Year 5 10:15 a.m. To: auditsenior@auditfirm.com Subject: Review of Audit Files Red Barron Trucking Footnotes [excerpt] Note 11: Lease Commitments Lease Commitments We lease land, buildings, and equipment under agreements that expire over various contractual periods. Minimum noncancelable operating lease commitments at December 31, Year 4, were as follows (in millions): Operating lease expense for the years ended December 31 was as follows (in millions): Operating lease expense for the years ended December 31 was as follows (in millions): Note 12: Equity in Net Assets of Affiliated Companies We use the equity method of accounting for our investments in entities over which we do not have control, but over whose operating and financial policies we are able to exercise significant influence. Red Barron Trucking Footnotes [excerpt] We use the equity method of accounting for our investments in entities over which we do not have control, but over whose operating and financial policies we are able to exercise significant influence. Our ownership percentages and carrying value of our equity method investments at December 31 were as follows (in millions, except percentages): Production Gurus Footnotes [excerpt] Note 1: Summary of Significant Accounting Policies Basis of Presentation We prepared the consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP). Use of Estimates Conformity with GAAP requires the use of estimates and judgments that affect the reported amounts in the consolidated financial statements and accompanying notes. These estimates form the basis for judgments we make about the carrying values of our assets and liabilities, which are not readily apparent from other sources. We base our estimates and judgments on historical information and on various other assumptions that we believe are reasonable under the circumstances. GAAP requires us to make estimates and judgments in several areas, including, but Use of Estimates Conformity with GAAP requires the use of estimates and judgments that affect the reported amounts in the consolidated financial statements and accompanying notes. These estimates form the basis for judgments we make about the carrying values of our assets and liabilities, which are not readily apparent from other sources. We base our estimates and judgments on historical information and on various other assumptions that we believe are reasonable under the circumstances. GAAP requires us to make estimates and judgments in several areas, including, but not limited to, those related to revenue recognition, collectibility of accounts receivable, contingent liabilities, fair value of financial instruments, fair value of acquired intangible assets and goodwill, useful lives of intangible assets and property and equipment, and income taxes. These estimates are based on management's knowledge about current events and expectations about actions we may undertake in the future. Actual results could differ materially from those estimates. Income Taxes We recognize income taxes under the asset and liability method. We recognize deferred income tax assets and liabilities for the expected future consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. These differences are measured using the enacted statutory tax rates that are expected to apply to taxable income for the years in which differences are expected to reverse. We recognize the effect on deferred income taxes of a change in tax rates in income in the period that includes the enactment date. We record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income, and ongoing tax planning strategies, in assessing the need for a valuation allowance. Property and Equipment Property and equipment are stated at cost less accumulated depreciation. We Property and Equipment Property and equipment are stated at cost less accumulated depreciation. We utilize units-of-production to calculate depreciation for our production equipment and use the straight-line method for all other depreciable assets. In Year 4 , we changed our method of depreciation on our production equipment from the straight-line method to units-of-production because we thought that it more accurately matched revenue and the related expense. The estimated useful lives of property and equipment are described below: Land and assets held within construction in progress are not depreciated. Construction in progress is related to the construction or development of property from the straight-line method to units-of-production because we thought that it more accurately matched revenue and the related expense. The estimated useful lives of property and equipment are described below: Land and assets held within construction in progress are not depreciated. Construction in progress is related to the construction or development of property and equipment that have not yet been placed in service for their intended use. The cost of maintenance and repairs is expensed as incurred. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from their respective accounts, and any gain or loss on such sale or disposal is reflected in income from operations. Assisted Living Group Footnotes [excerpt] Note 20: Commitments and Contingencies Litigation and Claims As is typical in the health care industry, the Company has experienced an increasing trend in the number and severity of litigation claims asserted against it. While the Company believes that it provides high-quality care to its patients and is in substantial compliance with regulatory requirements, a legal judgment or adverse governmental investigation could have a material negative effect on the Company's financial position, results of operations, or cash flows. On May 1, Year 4, two plaintiffs filed a complaint against the Company in the Superior Court of Nevada, entitled Fren v. Assisted Living Group. In the complaint, the plaintiffs allege, among other things, that certain Nevada-based facilities failed to On May 1, Year 4, two plaintiffs filed a complaint against the Company in the Superior Court of Nevada, entitled Fren v. Assisted Living Group. In the complaint, the plaintiffs allege, among other things, that certain Nevada-based facilities failed to provide an adequate number of qualified prsonnel to care for their residents and misrepresented the quality of care provided in their facilities. Plaintiffs allege that these failures violated, among other things, the residents' rights, the Nevada Health and Safety Code, and the Consumer Legal Remedies Act. Plaintiffs seek, among other things, restitution of money paid for services allegedly promised to, but not received by, facility residents during the period from September Year 2 to the present. It is probable that we will lose this case. However, given the uniqueness of this case, we are unable to estimate a loss amount at this time. In addition to the above, the Company is involved in various other lawsuits and claims arising in the ordinary course of business. These matters are, in the opinion of management, immaterial both individually and in the aggregate with respect to the Company's consolidated financial position, results of operations, and cash flows. Valuation of Deferred Tax Assets and Liabilities Deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences that exist between the financial statement carrying value of assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards on a taxing jurisdiction basis. The Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which it expects the temporary differences to be recovered or paid. The Company's accounting for deferred tax consequences represents the best estimate of the likely future tax consequences of events that have been recognized on the financial statements or tax returns and their future probability. In assessing the need for a valuation allowance, the Company considers both positive and negative evidence related to the likelihood of realization of the deferred tax assets. If, based on the weight of available evidence, it is more likely than not that the deferred tax assets will not be realized, the Company records a valuation allowance