For the year ended December 31, 2012, Friday & Co., CPAs (\"Friday\"), audited t
ID: 2482361 • Letter: F
Question
For the year ended December 31, 2012, Friday & Co., CPAs ("Friday"), audited the financial statemetns of Kim Company and expressed an unqualified opinion on the balance sheet only. Friday did not observe the taking of the physical invenotry as of December 31, 2011, because that date was prior to its appointment as auditor. Friday was unable to satisfy itself regarding inventory bu means of toher auditing procedures, so it did not express an opinion on the other basic financial statemetns that year.
For the year that ended December 31, 2013, Friday expressed an unqualified opinion on all the basic finacial statements and satified itself as to the consistent application of generally accepted accounting principles. The fieldwork was completed on March 12, 2014; the partner-in-charge reviewd the working papers and signed the auditor's report on March 19, 2014. The report on the comparative financial statements for 2013 and 2012 was delivered to Kim on March 21, 2014.
Required:
Prepare Friday's audit report that was submitted to Kim's board of directors on the 2013 and 2012 comparative financial statements. Kim is a public company. Firday has conducted an audit of Kim's internal controls over financial reporting based on the COSO framework. No material weaknesses were identified.
Explanation / Answer
To the Board of Directors of Kim Company:
We have audited the accompanying balance sheets of Kim Company as of December 31, 2013 and 2012, and the related statements of income, retained earnings, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
Except as explained in the following paragraph, we conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform our audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
We did not observe the taking of the physical inventory as of December 31, 2011, since that date was prior to our appointment as auditors for the Company, and we were unable to satisfy ourselves regarding inventory quantities by means of other auditing procedures. Inventory amounts as of December 31, 2011, enter into the determination of net income and cash flows for the year ended December 31, 2012.
Because of the matter discussed in the preceding paragraph, the scope of our work was not sufficient to enable us to express, and we do not express, an opinion on the results of operations and cash flows for the year ended December 31, 2012.
In our opinion, the balance sheets of Kim Company as of December 31, 2013 and 2012, and the related statements of income, retained earnings, and cash flows for the year ended December 31, 2013, present fairly, in all material respects, the financial position of Kim Company as of December 31, 2013 and 2012, and the results of its operations and its cash flows for the year ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Kim Company’s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 12, 2014 expressed an unqualified opinion that Kim Company maintained, in all material respects, effective internal control over financial reporting.
Friday & Co., CPAs
Mar 12, 2014