Carl Monson, the owner of Major Products Manufacturing Company, a small, successful, long-time audit client of your firm, has requested you to work with his
company in preparing three-year forecasted information for the year ending December 31, 2020, and two subsequent years. Monson informs you that he intends to use the forecasts,
Required
Research
Required
In-class
Discussion
Required
Chapter 25 / OTHER ASSURANCE SERVICES 841
together with the audited financial statements, to seek additional financing to expand the business. Monson has had little experience in formal forecast preparation and counts on you to assist him in any way possible. He wants the most supportive opinion possible from your firm to add to the credibility of the forecast. He informs you that he is willing to do anything necessary to help you prepare the forecast.
First, he wants projections of sales and revenues and earnings from the existing busi-
ness, which he believes can continue to be financed from existing capital.
Second, he intends to buy a company in a closely related business that is currently op-
erating unsuccessfully. Monson states that he wants to sell some of the operating assets of the business and replace them with others. He believes that the company can then be made highly successful. He has made an offer on the new business, subject to obtaining proper financing. He also informs you that he has received an offer on the assets he intends to sell.
a. Explain circumstances under which it is and is not acceptable to undertake the
engagement.
b. Why is it important that Monson understand the nature of your reporting require-
ments before the engagement proceeds?
c. What information will Monson have to provide to you before you can complete the
forecasted statements? Be as specific as possible.
d. Discuss, in as specific terms as possible, the nature of the report you will issue with
the forecasts, assuming that you are able to properly complete them
