You, a CA, have recently accepted a job at the accounting firm of Cat, Scan, & Partners, as a manager, and have been assigned the audit of Vision Clothing Inc.
(VCI). The partner in charge had been at VCI the previous week and had met with the controller to discuss the year-end audit. The partner has requested that you review his notes and prepare a detailed report for the client regarding accounting and other issues (excluding tax and assurance).
He handed you his notes and extracts from the current year's preliminary financial statements (Exhibit III ), from which you learn the following about the company.

Required:
Prepare the report to the client and the memo to partner.

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EXHIBIT III VISION CLOTHING COMPANY EXTRACTS FROM CONSOLIDATED INCOME STATEMENT for the years ended January 31 (in Thousands of Dollars) Year 3 Year 2 (Preliminary) (Audited) $1,244,102 721,579 522,523 315,333 150,186 57,004 42,380 31,381 (16,757) 6,660 (10,097) Sales Cost of goods sold Gross margin Selling expenses Head office expenses Eamings before the following: $1,305,125 848,332 456,793 272,453 138,938 45,402 52,600 37,484 (44,682) 17.873 26,809) Interest Earmings before taxes Income taxes Eamings (loss) from investment in 4,700 (850) affiliated companies Net earnings Attributable to: $ (22.109) 10,947) Shareholders of VCI Non-controlling interest s (19,684) 7,523) S (22,1 (10,947) VISION CLOTHING COMPANY EXTRACTS FROM CONSOLIDATED BALANCE SHEET as at January 31 in Thousands of Dollars) Year 3 (Preliminary) Year 2 (Audited) Assets Current Cash and short-term investment Inventory Other current assets Income taxes recoverable Deferred taxes 42,420 250,713 61,962 $145,400 250,209 57,432 2,660 17,873 372,968 27,825 353,420 127,472 $881,685 455,701 23,125 312,800 123,842 $915,468 Investment in affiliated companies Property, plant, and equipment-net Goodwill Liabilities and Shareholders' Equity Accounts payable Current portion of long-term debt and financing lease $212,790 $257,135 obligations Other current liabilities 55,412 34,800 303,002 22,160 4,200 283,495 Long term Long-term debt Finance lease obligations Debentures payable 93,000 58,208 100,000 251,208 133,000 48,889 150,000 331,889 Shareholders' equity Ordinary shares Retained earnings Non-controlling interest 195,500 75,566 56,409 327,475 $881,685 146,000 95,250 58,834 300,084 $915,468