Assignment:
(Critique an Audit Report Qualified for a Scope Limitation)
Task:
You are a senior auditor working for Rittenberg & Schwieger, CPAs. Your staff assistant has drafted the following audit report. You believe the scope limitation is significant enough to qualify the opinion, but not to disclaim an opinion.
To Joseph Halberg, Controller
Billings Container Company, Inc.
We have audited the accompanying balance sheet of Billings Container Company and the related statements of income, retained earnings, and statement of changes in financial position as of December 31, 2007. These financial statements are the responsibility of the Company's management.
Except as discussed in the following paragraph, we conducted our audit in accordance with accounting principles generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain assurance about whether the financial statements are free of misstatement. An audit includes examining evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. We were unable to obtain sufficient competent evidence of the fair market value of the Company's investment in a real estate venture due to the unique nature of the venture. The investment is accounted for using the equity method and is stated at $450,000 and $398,000 at December 31, 2007 and 2006, respectively.
In our opinion, except for the above-mentioned limitation on the scope of our audit, the financial statements referred to above present fairly the financial position of Billings Container Company as of December 31, 2007 and 2006, and the results of its operations and its cash flows for the year then ended in conformity with auditing standards generally accepted in the United States of America.
s/Bradley Schwieger, CPA
St. Cloud, MN
December 31, 2007
Required:
Q: Identify the deficiencies in this draft, and state how each deficiency should be corrected. Organize your answer around the components of the audit report (introductory paragraph, scope paragraph, and so on).