Sturdy Corporation (a nonpublic company) owns and operates a large office building in a desirable section of New York City’s financial center. For many years, management of Sturdy Corporation has modified the presentation of its financial statement by:
1. Reflecting a write-up to appraisal values in the building accounts.
2. Accounting for depreciation expense on the basis of such valuations.
Wyley, CPA, was asked to audit the financial statements of Sturdy Corporation for the year ended December 31, 20X3. After completing the audit, Wyley concluded that, consistent with prior years, an adverse opinion would have to be expressed because the material misstatements were considered pervasive.
a. Describe in detail the appropriate content of the basis for modification section of the auditors’ report on the financial statements of Sturdy Corporation for the year ended December 31, 20X3. Do not discuss deferred taxes.
b. Write a draft of the opinion paragraph of the auditors’ report on the financial statements of Sturdy Corporation for the year ended December 31, 20X3.