It is only required for the cumulative preferred dividend to be involved. Otherwise, there are no recommendations from the CPA. Financial statement readers comprehend the discretionary nature of common stock policy for the board of directors. In this case, the company does not need to commit itself for the policy or elaborate the historical policy within the financial statements. In case the cumulative preferred dividend are not included, they should not be uncovered in either the footnote or financial statement. After the fieldwork completion, the requirement for disclosure is not affected.
Nevertheless, if Lancaster fails to uncover the event the way the auditor recommends, then the financial statements are incorrect and misleading. Mr. Olds may show unfavorable response which depends on the materiality of the disclosure. A disclaimer or subject to comment might be justifiable following the adequacy of the disclosure and then the determination of economic effects. The event happening after completion affects no disclosures (Botosan & Plumlee, 2002). Therefore, the inquiry of all the circumstances, the field work, and the report dates are the duties of the auditor.
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Item 2
There was a misinterpretation of requirements of the loan agreement review by the staff auditor. $298,000 is the amount for the retained earnings as at the agreement date. The amount and the nature of the restriction need to be disclosed within the financial statement’s footnote or balance sheet. Nonetheless, an assumption of Lancaster failing to make the disclosure recommended, then the auditor’s report should be revealed, and an appropriate opinion would qualify.
Item 3
The Sixth National Bank matches a particular criterion for a property purchase on installment. It is therefore non-cancellable, and thus the company may buy the property at its expiration date at a given nominal price. It is less than the fair value- insurance, property taxes, and maintenance.
Therefore, it suffices that Mr. Olds should make a recommendation on related obligation and that the available property should be well entered in the balance sheet. The future payments of the discounted amount should be appropriately fed following the guidelines of the lease agreement. Moreover, annual financing entries that apply to the cost amortization and outstanding obligation are included in the income statement (Maines & McDaniel, 2000). Also, additional footnote disclosure may also be required. Nevertheless, if there are no recommendations regarding installment purchase by Lancaster, then an explanation from Mr. Olds is essential in the report and opinion qualification towards conformity with the general accounting guidelines or principles. Mr. Olds would also if there is, express an unfavorable opinion if the situation is that the amounts are very material that makes his opinion indefensible even if it were qualified.
Item 4
The nature of the competitive development is often regarded as a subsequent event of a second type. It offers evidence to a situation that did not earlier exist on the balance sheet’s date. Nonetheless, the auditor might complete in their report that the competitive condition of Lancaster at the end of the year was weak. Moreover, the situation is to be revealed to the financial statement users since the new plant economic recoverability is not sure and that Lancaster would endure substantial expenditures to shape its facilities. The determination of economic effects is not possible. Therefore the disclosure often made will be on financial statement footnote (Van Mourik, 2010).
Moreover, if the plant's recent value is established, Lancaster should think of disclosure based on the company’s financial position in a balance sheet. The situation may assume as evidence of a non-existent condition at the year-end, December 31, 2011. The state is only when the conclusion was that it existed at the end of the year- December 31, 2011, should ensure financial statements are adequately adjusted for the practical economic effects of which neither is effective under the provided assumption would be justifiable if the build-up of the condition was disclosed and economic effects not determined.
Reference
Botosan, C. A., & Plumlee, M. A. (2002). A re ‐ examination of disclosure level and the expected cost of equity capital. Journal of accounting research, 40(1), 21-40.
Maines, L. A., & McDaniel, L. S. (2000). Effects of comprehensive-income characteristics on nonprofessional investors' judgments: The role of financial-statement presentation format. The accounting review, 75(2), 179-207.
Van Mourik, C. (2010). The equity theories and financial reporting: an analysis. Accounting in Europe, 7(2), 191-211.
