Russ Major, CPA, drafted the following report on October 25, 20XX at the completion of the…
Russ Major, CPA, drafted the following report on October 25, 20XX at the completion of the engagement to compile the financial statements of Ajax Company for the year ended September 30, 20XX. Ajax is a nonpublic entity in which Major’s child has a material direct financial interest. Ajax decided to omit substantially all of the disclosures required by GAAP because the financial statements will be only for management’s use. The statement of cash flows was also omitted because management does not believe it to be a useful financial statement. Identify the deficiencies contained in Major’s report on the compiled financial statements. Group the deficiencies by paragraph when applicable. Do not redraft the report.
To the Board of Directors of Ajax Company:
I have compiled the accompanying financial statements of Ajax Company as of September 30, 20XX, and for the year then ended. I planned and performed the compilation to obtain limited assurance about whether the financial statements are free of material misstatements.
A compilation is limited to presenting information in the form of financial statements. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. I have not audited the accompanying financial statements and, accordingly, do not express any opinion on them.
Management has elected to omit substantially all of the disclosures required by generally accepted accounting principles. If the omitted disclosures were included in the financial statements, they might influence the user’s conclusions about the Company’s financial position, results of operations, and changes in financial position.
I am not independent with respect to Ajax Company. This lack of independence is due to my child’s ownership of a material direct financial interest in Ajax Company.
This report is intended solely for the information and use of the Board of Directors and management of Ajax Company and should not be used for any other purpose.