Reference no: EM132800729
Question - Bernstein and Starkey, CPAs, audited the financial statement of Masco industries for the year ended December 31, 2020. During planning a materiality threshold was established at $100,000. The following issues were encountered during the audit.
-Management revealed it had changed its methods of accounting for inventory from LIFO to FIIZTO in 2020. This change resulted in net income decreasing by $60,000 in 2020.
-Management capitalized $300,000 of Research and development costs instead of expensing it as incurred as per prevailing US GAAP. The auditors made a proposed adjusting journal entry but management did not accept it.
-Masco revealed to the auditors that it had lost customer XYZ on March 1, 2021. This customer accounted for 30% of its revenues in 2020.
-Masco is a defendant in an ongoing lawsuit alleging patent infringement. This is adequately disclosed in the notes to the financial statement but no provision for liability was recorded by management. The audits proposed adjusting journal entry was accepted by management and a liability of $200,000 was eventually recorded. Masco's net income was $1,200,000 for 2020. It had the following weighted common shares of 300,000 and 100,000 fully diluted shares during 2020.
Required - How would the issues affect Bernstein and Starkey's independent auditor's report which is to be issued on March 31, 2020.
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