Patel, CPA, has completed the audit of the financial statements of Bellamy Corporation as of and for the year ended December 31, 2019. Patel also audited and reported on the Bellamy financial statements for the prior year. Patel drafted the following report for 2019.
We have audited the balance sheet and statements of income and retained earnings of Bellamy Corporation as of December 31, 2019. We conducted our audit in accordance with generally accepted accounting standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of misstatement.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly the financial position of Bellamy Corporation as of December 31, 2019, and the results of its operations for the year then ended in conformity with generally accepted auditing standards, applied on a basis consistent with those of the preceding year.
Patel, CPA
(Signed)
Here are some other pertinent facts about the audit:
Bellamy is a private corporation and is presenting comparative financial statements.
Bellamy does not wish to present a statement of cash flows for either year.
During 2019, Bellamy changed its method of accounting for long-term construction contracts and properly reflected the effect of the change in the current year’s financial statements and restated the prior year’s statements. Patel is satisfied with Bellamy’s justification for making the change. The change is discussed in the footnotes to the financial statements.
Patel was unable to perform normal accounts receivable confirmation procedures, but alternative procedures were used to satisfy Patel as to the existence of the receivables.
Bellamy Corporation is the defendant in a litigation, the outcome of which is highly uncertain. If the case is settled in favor of the plaintiff, Bellamy will be required to pay a substantial amount of cash, which might require the sale of certain fixed assets. The litigation and the possible effects have been properly disclosed in the footnotes to the financial statements.
Bellamy issued bonds on January 31, 2018, in the amount of $10 million. The funds obtained from the issuance were used to finance the expansion of plant facilities. The bond agreement restricts the payment of future cash dividends to earnings after December 31, 2023. Bellamy declined to disclose this essential data in the footnotes to the financial statements.
Required:
Explain the deficiencies in Patel’s report as drafted. There are at least 15 deficiencies. Identify only one deficiency in their original post and then respond to at least two other students posts sometime during the week.
You can agree or disagree with other students but make sure you explain why you agree or disagree.
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