PREPARE A PROPER TRIAL BALANCE FOR THIS INFORMATION; Bedrock Quarries Ltd$.($Bedrock$),$ wholly owned by Betty Rubble, has operated a sand and gravel pit since $2003.$ During that time, its revenues have increased moderately. On March $15,2026,$ after almost two years of negotiation, a purchase and sale agreement between Flintstone Sand and Gravel Ltd$.($Flintstone$)$ and Betty Rubble was completed whereby Ms$.$ Rubble sold Bedrock to Flintstone. Mr$.$ Flintstone, sole shareholder of Flintstone, was optimistic about the synergistic benefits that would accrue to the combined operations.

Mr$.$ Harrison, the senior partner of Harrison, Longo, and Chan $($HLC$),$ Chartered Accountants, and a cousin of Ms$.$ Rubble, has recently been informed that a complaint was made to the Provincial Institute of Chartered Accountants $($PICA$)$ regarding his involvement with Bedrock. In February $2027,$ Mr$.$ Flintstone submitted a complaint to the PICA alleging that HLC$,$ and Mr$.$ Harrison in particular, were associated with financial statements of Bedrock that were false and materially misleading. Apparently, Mr$.$ Flintstone has retained counsel and is preparing to commence legal action against HLC for negligence in its work on the Bedrock engagements.

For each of the fiscal years ended January $31,2023,$ and January $31,2024,$ HLC prepared audited reports, and for the fiscal years ended January $31,2025,$ and January $31,2026,$ HLC prepared review engagement reports on the financial statements of Bedrock. Mr$.$ Harrison is adamant that Bedrock$$s financial statements were prepared in accordance with International Financial Reporting Standards.

The PICA does not have the staff available at the moment and has asked Chapman & Partner $($CP$),$ Chartered Accountants, to investigate Mr$.$ Flintstone$$s complaint. You are employed by CP$.$ Jim Chapman, partner in charge of CP$$s litigation department, has asked you to prepare a memo discussing all relevant matters regarding the engagement. He will use it as a basis for discussion in a meeting he has scheduled for next week, on May $12,2027,$ with staff from the PICA.

In order to prepare your memo, you have been provided with extracts from Bedrock$$s financial statements for the years $2024$ to $2026($see Exhibit I$).$

ExhibitIExtracts from financial statements for Bedrock Quarries Ltd$.($in $$000$s$)$

Balance sheet as at January $312026($unaudited$)2025($unaudited$)2024($audited$)$

Assets

Cash and cash equivalents

$$$$23,397$

$$$$21,215$

$$$$29,219$

Accounts receivable

$38,903$

$28,869$

$22,927$

Inventory

$18,155$

$17,011$

$29,019$

Land at cost

$3,637$

$3,637$

$3,637$

Plant and equipment at cost

$93,987$

$93,987$

$93,987$

Accumulated depreciation and depletion

$(56,091)$

$(51,714)$

$(47,195)$

Investment in and advances to associated company

$9,394$

$9,165$

$4,716$

$$$$131,382$

$$$$122,170$

$$$$136,310$

Liabilities and shareholder$$s equity

Bank indebtedness

$$$$628$

$$$$503$

$$$$21,120$

Accounts payable

$22,695$

$24,179$

$20,325$

Long$-$term debt

$43,076$

$39,114$

$47,161$

Deferred taxes

$6,296$

$5,454$

$396$

Common shares

$1,000$

$1,000$

$1,000$

Retained earnings

$57,687$

$51,920$

$46,308$

$$$$131,382$

$$$$122,170$

$$$$136,310$

Income statement for the years ended January $31$

$2026($unaudited$)$

$2025($unaudited$)$

$2024($audited$)$

Revenue

$$$$78,697$

$$$$74,750$

$$$$62,215$

Operating expenses

Cost of sales

$54,534$

$50,988$

$59,223$

Sales and general costs

$4,490$

$3,819$

$5,051$

Development

$1,760$

$2,019$

$1,693$

Depreciation and depletion

$4,377$

$4,519$

$4,776$

$65,161$

$61,345$

$70,743$

Operating profit $($loss$)$

$13,536$

$13,405$

$(8,528)$

Interest expense, net

$1,227$

$1,119$

$1,315$

Exploration expense

$1,149$

$1,212$

$976$

Research expense

$463$

$404$

$391$

$2,839$

$2,735$

$2,682$

Income $($loss$)$ before income taxes

$10,697$

$10,670$

$(11,210)$

Income taxes

$4,930$

$5,058$

$$

Net income $($loss$)$

$$$$5,767$

$$$$5,612$

$$$$(11,210)$