Reed, a college student majoring in accounting, helped finance his education with a part-time job maintaining all accounting records for a small business, Red Corporation, located near the campus. Upon graduation, Reed passed the CPA examination and joined the audit staff of a national CPA firm. However, he continued to perform all accounting work for Red Corporation during his "leisure time." Two years later, Reed received his CPA certificate and decided to give up his part-time work with Red Corporation. He notified White that he would no longer be available after preparing the year-end financial statements.

On January 7, Reed delivered the annual financial statements as his final act for Red Corporation. The owner then made the following request: "Carter, I am applying for a substantial bank loan, and the bank loan officer insists upon getting audited financial statements to support my loan application. You are now a CPA, and you know everything that's happened in this company and everything that's included in these financial statements, and you know they give a fair picture. I would appreciate it if you would write out the standard audit report and attach it to the financial statements. Then I'll be able to get some fast action on my loan application.

1. Would Reed be justified in complying with Red's request for an auditor's opinion? Explain.

2. If you think Reed should issue the audit report, do you think he should first perform an audit of the company despite his detailed knowledge of the company's affairs? Explain.