Question
You are an audit manager with Hodges, Jones, and Silvia, Certified Public Accountants (the Firm). One of your responsibilities is to serve as the primary
You are an audit manager with Hodges, Jones, and Silvia, Certified Public Accountants (the Firm). One of your responsibilities is to serve as the primary contact and audit manager on the Firms annual audit of the financial statements of Hotel Corporation (the Company). The Company is engaged in electrical construction on the East Coast of the United States. The Company, which is privately owned, prepares its financial statements on the accrual method of accounting and has a calendar year end. The Company reports its revenues on the percentage completion method of accounting. The Companys CFO is a CPA and formally worked with your Firm. The CFO and her staff maintain all of the Companys books and records and prepares a draft of the Companys GAAP basis financial statements which are available to your team at the onset of the audit. On January 1, 2021, the Company acquired 30 percent of the outstanding common stock of Blair Specialty Lighting (Blair) and on January 1, 2022 acquired an additional 25 percent to bring the Companys ownership of Blair to a total of 55 percent. Blair is separately audited by BDO. Blair also has a calendar year end and prepares its financial statements on a GAAP basis. Blair also has an outstanding CFO and accounting staff and they are also very capable of preparing their own financial statements. For both 2021 and 2022, BDO has expressed an unmodified opinion on Blairs financial statements. For all of 2021 and 2022, the Company has accounted for its investment in Blair under the equity method of accounting. You have had detailed discussions with the Companys CFO and the Companys board of directors about the need to consolidate the financial statements of Blair with the Company as of and for the year ended December 31, 2022. Everyone agrees, including Stan Hodges, who serves as the engagement partner for Hotel Company that under US GAAP that Blair should be consolidated with Hotel. The Companys CFO has asked you and Stan to meet with the Companys board of directors and discuss how the Companys audit opinion would read if the Company chooses not to consolidate Blair. During your discussion with the CFO and the board they have expressed a number of valid business reasons for not consolidating the Company and you and Stan are comfortable there is not anything alarming about their consideration of not consolidating Blair. Page 2 of 3 The Companys adjusted trial balance, as of and for the year ended December 31, 2022, for the Company and Blair are as follows:
Required In preparation for your and Stans meeting with the Companys CFO and the Companys board, prepare (for Stans review) a memorandum addressing the type (and related wording) of the opinion that will be necessary in connection with your audit of the Companys financial statements as of and for the year ended December 31, 2022, assuming that the board decides not to consolidate Blair. For the purpose of this exercise, assume that the Companys 2022 financial statements will not be comparative with 2021. A complete reciting of the Companys 2022 audit opinion is not necessary; only the portion that will convey the significance of the report wording to management and the board if Blair is not consolidated is necessary.
Hotel Corporation Adjusted Trial Balance (Final) 12.31.22 Blair Specialty Lighting Adjusted Trial Balance (Final) 12.31.22 Debit Credit Reauired Hotel Corporation Adjusted Trial Balance (Final) 12.31.22 Blair Specialty Lighting Adjusted Trial Balance (Final) 12.31.22 Debit Credit ReauiredStep by Step Solution
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