You are the audit partner of ABC Audit. Your audit team is finishing up the audit of NewClient Inc. (NCI) for the first time. You have just received the following correspondence from Jay the audit senior:

Hi Sam, A few unusual issues have come up and I need to review them with you. As I have not dealt with these issues in the past, I was hoping we could meet tomorrow. Here are the issues:

The CFO indicated that NCI does not want to present a Cash Flow statement because the company is privately held, and financial statements users do not need that statement.

The lawyers have not responded yet to the legal confirmation.

During the accounts receivable confirmation process, we were not able to perform

some confirmations, but we were successful at using alternative procedures.

The company has outsourced its payroll system, and we have received and used the type-2 report from the service company's auditors and therefore we have been able

to rely on their high-quality internal controls to limit our tests of details on the

payroll cycle.

One material misstatement was found by the audit team during the audit of the

accounts payable cycle, but it has now been adjusted.

A large amount of revenue has not been reported for tax purposes. When I brought

up the issue with the CFO, he indicated vociferously that these items do not qualify as taxable items for tax purposes. He has indicated that the tax returns he prepares are his responsibility and that he does it because he has a strong tax background. He is aware the CRA position will be to challenge his aggressive approach, but he indicated that NCI and its lawyers will be happy to fight CRA if need be.

You have decided to respond to the e-mail with your proposed conclusions and course of action.