Accounting
REQUIRED: Draft the appropriate audit opinion given the following scenarios. Each situation is independent of the other situations.
1. Proli Footwear’s management refuses to accrue the accounts receivable loss related to the bankruptcy of Moccasins For All.
2. The bank is expected to withdraw its financing because:
a. The Company has projections that indicate continued decrease in earnings and reduced revenues; OR
b. The Company has violated certain loan covenants that the bank will not waive.
3. The auditors want to emphasize, in their opinion, the facts related to the fire that occurred in January.
On January 1, 2015, part of the north end warehouse in Walton, Florida was destroyed due to a fire intentionally started by a disgruntled employee. The total damage is estimated to be $1,800,000 that of which Proli Footwear’s insurance company will cover, less the 10% deductable. Overall Proli Footwear will pay out an estimated $180,000 to cover the damages from the fire. Controller, Brian Baddude expects a 10% decrease production in the first quarter of 2015. 4. Proli Footwear’s management refuses to accrue the warranty expense adjustments proposed by West & Fair. Throughout the previous year Proli has been determining their warranties payable according to 0.2% of their annual net sales. Upon further investigation by our audit staff member, it was determined that since 2004, Proli Footwear’s warranties payable have been 0.3% of their annual net sales. Also $102,000 worth of warranty liabilities was debited to other assets erroneously. Due to the miscalculation or the warranty liability percentage and the incorrect allocation of warranty liabilities, we are issuing an adverse opinion for Proli Footwear’s warranty
1. Proli Footwear’s management refuses to accrue the accounts receivable loss related to the bankruptcy of Moccasins For All.
2. The bank is expected to withdraw its financing because:
a. The Company has projections that indicate continued decrease in earnings and reduced revenues; OR
b. The Company has violated certain loan covenants that the bank will not waive.
3. The auditors want to emphasize, in their opinion, the facts related to the fire that occurred in January.
On January 1, 2015, part of the north end warehouse in Walton, Florida was destroyed due to a fire intentionally started by a disgruntled employee. The total damage is estimated to be $1,800,000 that of which Proli Footwear’s insurance company will cover, less the 10% deductable. Overall Proli Footwear will pay out an estimated $180,000 to cover the damages from the fire. Controller, Brian Baddude expects a 10% decrease production in the first quarter of 2015. 4. Proli Footwear’s management refuses to accrue the warranty expense adjustments proposed by West & Fair. Throughout the previous year Proli has been determining their warranties payable according to 0.2% of their annual net sales. Upon further investigation by our audit staff member, it was determined that since 2004, Proli Footwear’s warranties payable have been 0.3% of their annual net sales. Also $102,000 worth of warranty liabilities was debited to other assets erroneously. Due to the miscalculation or the warranty liability percentage and the incorrect allocation of warranty liabilities, we are issuing an adverse opinion for Proli Footwear’s warranty