Question: Following is a draft of an auditors report for the audit of a nonpublic company. Identify and describe as many issues or errors as you can. Use the next page to record your answers.

Auditors Report

To the Shareholders of ABC Company:

We have examined the accompanying financial statements of ABC Company, which comprise the balance sheets as of December 31, 2016 and 2015, and the related statements of income, changes in stockholders equity and cash flows for the years then ended, and the related notes to the financial statements.

Auditors Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain absolute assurance about whether the financial statements are free of misstatement.

Managements Responsibility for the Financial Statements

As a result of our audit, management is relieved of its responsibility for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; including the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, and for the purpose of expressing an opinion on the effectiveness of the entitys internal control. An audit does not include evaluation of the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, in addition to the overall presentation of the financial statements.

Opinion

Our conclusion is that the financial statements referred to above present fairly, in all material and immaterial respects, the financial position of ABC Company as of December 31, 2016 and 2015, and the results of its operations and its cash flows for the years then ended in accordance with auditing standards generally accepted in the United States of America.

John Smith, CPA

Madison, WI

March 25, 2017