Stellar, CPAs, audited the consolidated financial statements of Sparkle Company for the year ended December $31,20$X$3,$ and expressed an adverse opinion because Sparkle carried its plant and equipment at appraisal values, and provided for depreciation on the basis of such values.

Stellar also audited Sparkle's financial statements for the year ended December $31,20$X$4.$ These consolidated financial statements are being presented on a comparative basis with those of the prior year and an unqualified opinion is being expressed.

George, the engagement supervisor, instructed Jettsen, an assistant on the engagement, to draft the auditor's report on May $3,20$X$5,$ the date of completion of the fieldwork. In drafting the report below, Jettsen considered the following:

Sparkle recently changed its method of accounting for plant and equipment and restated its $20$X$3$ consolidated financial statements to conform with GAAP. Consequently, Stellar$$s present opinion on those statements is different $($unqualified$)$ from the opinion expressed on May $12,20$X$4$ for the $20$x$3$ consolidated financial statements.

Sunshine, CPAs, audited the financial statements of SX$,$ Incorporated, a consolidated subsidiary of Sparkle, for the year ended December $31,20$X$4.$ The subsidiary's financial statements reflected total assets and revenues of $2\%$ and $3\%,$ respectively, of the consolidated totals. Sunshine, CPAs expressed an unqualified opinion and furnished Stellar, CPAs with a copy of the auditor's report. Stellar has decided to assume responsibility for the work of Sunshine, CPAs insofar as it relates to the expression of an opinion on the consolidated financial statements taken as a whole.

Sparkle is a defendant in a lawsuit alleging patent infringement. This is adequately disclosed in the notes to Sparkle's financial statements, but no provision for liability has been recorded because the ultimate outcome of the litigation cannot presently be determined.

REPORT DRAFTED BY JETTSEN

Independent Auditors Report

Report on the Financial Statements

We have audited the accompanying consolidated financial statements of Sparkle Company, which comprise the consolidated balance sheets of Sparkle Company and subsidiaries as of December $31,20$X$4$ and $20$X$3,$ and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the years then ended, and the related notes to the financial statements.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors Responsibility

Our responsibility is to express an opinion on these consolidated 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. An audit also includes evaluating the appropriateness of accounting policies used by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence that we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sparkle Company and subsidiaries as of December $31,20$X$4$ and $20$X$3,$ and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America except for the change in accounting principles with which we concur and the uncertainty, which is discussed in the following explanatory paragraph.

Emphasis of Matter

In our previous report, we expressed an opinion that the $20$X$3$ financial statements did not fairly present financial position, results of operations, and cash flows in conformity with generally accepted accounting principles because the Company carried its plant and generally accepted accounting principles because the Company carried its plant and equipment at appraisal values and provided for depreciation on the b