Problem - Analyze the following audit report
AUDIT REPORT
To the Audit Committee of Master Reconstruction, Inc.
We have examined the consolidated balance sheets of Master Reconstruction Inc. and subsidiaries as of May 31, 2011 and 2010, and the related consolidated 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.
Our audits were made in accordance with auditing standards generally accepted in the United States of America as we considered necessary in the circumstances. Other auditors audited the financial statements of certain subsidiaries and have furnished us with reports thereon containing no exceptions. Our opinion expressed herein, insofar as it relates to the amounts included for those subsidiaries, is based solely upon the reports of the other auditors.
As fully discussed in Note 7 to the financial statements, in 2011, the company extended the use of the last- in, first- out (LIFO) method of accounting to include all inventories. In examining inventories, we engaged Dr. Bernard Rodgers (Engineer of the Year 2008) to test check the technical requirements and specifications of certain projects completed by the company.
In our opinion, the financial statements referred to above present fairly the financial position of Master Reconstruction, Inc. as of December 31, 2011, and the results of operations for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
To be signed by Montero & Respress, CPAs July 1, 2011
Required:
1. Identify deficiencies in the staff accountant's tentative report that constitute departures from the generally accepted standards of reporting.
2. Prepare a written report to the staff accountant addressing your findings and requesting him to correct and resubmit the report.