Required:

1.Discuss the matters that should be considered in determining whether or not Long BeachBridge?smanagement is correct in its belief that the stolen tolls meet the criteria for revenue recognitionand that Long Beach Bridge?sfinancial statements should include an estimate of tolls stolen in revenues with an equal amount included in expenses. Do not concern yourself as to whether the expense should be classified as an extraordinary item.Indicate your conclusion regarding this matter and discuss the bases for such conclusion.

2.Indicate the type of auditors? report that should be issued on Long Beach Bridge?s2015financial statementsassuming an estimate of tolls stolen is included in revenue with an equal amount included in expenseanda note to the financial statements discloses the underlying assumptions and methods used in compiling the estimate. Also,assumeno unusual items, other than the stolen tolls, came to the attention of the auditors.In addition, assume nothing came to your attention during the audit of the Long Beach Bridge?s 2015financial statement that caused you to believe thatLong Beach Bridge?s2014financial statements were not presented in accordance with generally accepted accounting principles.

3.Prepare the auditors? reportthat will beincluded in Long Beach Bridge?s 2015annual report. The date of your opinion will be March 15, 2016.

Auditing Case Long Beach Bridge (a non-public company) operates a major bridge. Vehicles are required to pay a toll based on their type (e.g., passenger cars pay $5.00, commercial trucks pay $7.00). Toll revenues support the maintenance and upkeep of the bridge. There are 8 toll booths, several of which are automated for exact change while others are manually serviced by Long Beach Bridge employees. Each toll booth has an automated count mechanism to monitor the number of vehicles using the bridge each day. Periodically throughout each day, employees collect accumulated tolls. The funds are provided to an on-site, independent contractor hired by Long Beach Bridge to perform cash count and reconciliation functions. The funds are then transferred daily to a local depository institution. Beginning in January, 2015, several toll collectors and their supervisors conspired to steal toll monies and employees of the independent cash count contractor agreed to participate in the scheme. In order to \"cover their tracks,\" the cash count contractors altered the daily reports, including vehicle use and other cash reconciliation records. This alteration process was so effective that reconstruction of the original transactions was impossible. The thefts continued until November, 2015, when one toll collector felt he was not receiving his \"fair share\" of the money and anonymously called the Long Beach Bridge offices and reported the scheme. In order to estimate the amount of tolls stolen, Long Beach Bridge management engaged a qualified consultant to perform a demographic study of toll bridge use over a period of time. Long Beach Bridge management used this study to arrive at their estimate of tolls lost. Theft losses for 2015 were estimated to be $1.7 million. In preparing the financial statements of Long Beach Bridge for 2015, Long Beach Bridge management included their estimate of stolen revenue in \"revenues\" and reported the same amount as \"estimated losses due to theft loss\" in the costs and expenses section of the income statement. Toll revenue (including the estimate of stolen revenues) reported for 2015 was $9.2 million. There is no argument that some amount of tolls were collected and diverted to the benefit of the thieves; however, the actual amount stolen cannot be determined from the financial or other records. Long Beach Bridge management believes that the stolen tolls meet the criteria for revenue recognition and that the financial statements should include an estimate of tolls stolen in revenues with an equal amount included in expenses with a note to the financial statements describing the theft and the use of an estimate to record the revenue and expense. In December, 2015, your CPA firm (XYZ Certified Public Accountants) was engaged to perform an audit of Long Beach Bridge's financial statements for the year ended December 3, 2015. The Toll Bridge's financial statements for the year ended December 31, 2014 were audited by other auditors who expressed an unmodified opinion on 2014 financial statements. Both the Toll Bridge's 2015 and 2014 financial statements will be included in the Toll Road's 2015 annual report. Your opinion on the 2015 financial statements will also be included in the 2015 annual report. The other auditor's opinion on the 2014 financial statements will not be included in the 2015 annual report. 013113 Acct 470 S'13 Auditing Case Long Beach Toll Road.WPdocx 1 Business Assumptions and Other Data Long Beach Bridge had profitable operations in 2015 despite the theft loss. There appears to be no reason to question the integrity of Long Beach Bridge's management - collusion among the toll collectors, supervisors and cash count contractors allowed the theft to go undetected and to circumvent internal controls. Long Beach Bridge's management has taken appropriate action to remedy the situation and has enhanced controls even further. In addition, XYZ Certified Public Accountants believe that the estimate of the theft loss for 2015 was done in a professional manner but understand that the estimate is only an estimate and that it might be significantly different than the actual theft loss. In addition, XYZ Certified Public Accountants believe the $1.7 million estimated loss is not highly material in relation to Long Beach Bridge's 2015 financial statements. Web Page Information and Authoritative Literature: Access FASB accounting principles authoritative literature at aaahq.org/ascLogin.cfm. Log in using username (AAA51300) and password (3upX7UM), click on \"FASB Accounting Standards Codification,\" click on \"I accept,\" click on \"Concept Statements,\" click on applicable concept statements (# 5 and Chapter 3 of # 8). Access AICPA authoritative auditing literature at aicpa.org. Click on \"Research - Standards,\" click on \"Auditing and Attest Standards,\" click on \"Clarified Statements on Auditing Standards,\" click on applicable AU-C sections (700, 705, and 706). Required: 1. Discuss the matters that should be considered in determining whether or not Long Beach Bridge's management is correct in its belief that the stolen tolls meet the criteria for revenue recognition and that Long Beach Bridge's financial statements should include an estimate of tolls stolen in revenues with an equal amount included in expenses. Do not concern yourself as to whether the expense should be classified as an extraordinary item. Indicate your conclusion regarding this matter and discuss the bases for such conclusion. 2. Indicate the type of auditors' report that should be issued on Long Beach Bridge's 2015 financial statements assuming an estimate of tolls stolen is included in revenue with an equal amount included in expense and a note to the financial statements discloses the underlying assumptions and methods used in compiling the estimate. Also, assume no unusual items, other than the stolen tolls, came to the attention of the auditors. In addition, assume nothing came to your attention during the audit of the Long Beach Bridge's 2015 financial statement that caused you to believe that Long Beach Bridge's 2014 financial statements were not presented in accordance with generally accepted accounting principles. 3. Prepare the auditors' report that will be included in Long Beach Bridge's 2015 annual report. The date of your opinion will be March 15, 2016. 013113 Acct 470 S'13 Auditing Case Long Beach Toll Road.WPdocx 2 (a) Discussion of matters: There is fraud committed by cash count contractor because contractor misappropriation of company assets(cash) .As per company record of given information, Beginning in January, 2015, the cash count contractors altered the daily reports, including vehicle use and other cash reconciliation records. This alteration process was so effective that reconstruction of the original transactions was impossible. The thefts continued until November, 2015, when one toll collector felt he was not receiving his \"fair share\" of the money and anonymously called the Long Beach Bridge offices and reported the scheme. Conclusions: Assume that company materiality level = 4-5% of profit. 1- The amount of $1.7 is material in context of company profitability that is about 5.5% of the profit. 2- Management should have responsibility to disclose the matters in the financial statements. 3- The criteria of revenue recognition is incorrect. It is not treated as normal loss. It is as abnormal loss 4-The treatment of expense out of $1.7 is correct by Long Beach Bridge management. (b) 1- The report given by Auditor (XYZ Certified Public Accountants) is modified as per situation. 2- The Auditor is required to give the emphasis matters paragraph in the audit report. 3-The emphasis matters paragraph tells the attention of fraud committed by contractor. The matter must be disclosed in the financial statements. 4- Auditor must give the positive worded opinion about the financial statements. 5- The stolen is immaterial in accordance to company profitability and have no impacts on the financial statements. 6-Auditor is also required to consult the previous auditor of the company to discuss the company creditability as well as performance of the company. 7- Last year audit report should also be investigated by current auditor. Also find out any difference of the amount. If any unusual amount appears in the financial statements, then Auditor need to discuss the matter of management of the Long Beach Bridge. 8- Auditor must the recommendation letter to management of the Long Beach Bridge to find out any weakness in the internal control system. 9- There must be segregation of duties to collect, approve and to keep the cash safe. (c) Auditor Report Long Beach Bridge's 2015 Independent Auditor Report Report to the Financial Statements: We have audited the financial statements of Long Beach Bridge's 2015financial statements ,comprising of the balance sheet as on 31 December 2015, cash-flow statement and income statement for the year 2014-15. We have also referred the accounting policies and other documents of the Company Record. Responsibilities of Management: The directors of the company are responsible for the preparation of the financial statements so as to give a true and fair view in accordance with the accounting principles generally accepted in the United States of America. The directors are also responsible for the internal control as defined by the management to enable preparation of the financial statements that are free from any misstatements, whether due to fraud or error. Responsibilities of Auditor: Our responsibility is to express our opinion on the financial statements of your company based on our audit. We have conducted the audit in an independent and fair manner in accordance with the auditing standards of the United States of America and the standards applicable to financial audits. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatements. We have followed the procedures mentioned in our detailed audit plan to collect evidence about the disclosures made in the financial statements and have made the necessary risk assessments based on our judgement and experience. We believe that the evidence so collected during our audit is sufficient to formulate our audit opinion. Opinion Paragraph: In our opinion, the financial statements referred to above is not present fairly, in all material respects, the respective financial position of the Long Beach Bridge, as of 31 December 2015 and its performance and cash flows indicated are not in accordance with the accounting principles generally accepted in the United States of America. Emphasis matter paragraph: Cash has been miss-appropriate by cash contractor. But this amount is immaterial. Signature: XYZ Certified Public Accountants Date: March 15, 2016