Reference no: EM131046872

Modification of Unqualified Opinion Jorge Leyva, Licenciado en Contaduría Público, has completed the examination of the financial statements of Medina Construcción of Caracas, Venezuela, for the year ended July 31, 20X4. Leyva also examined and reported on the Medina financial statements for the prior year. Leyva's report is as follows: Auditor's report to Board of Directors of Medina Construcción. We have audited the accompanying balance sheet of Medina Construcción as of December 31, 20X3, and the related statements of income and retained earnings for the year 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 audit. We conducted our audit in accordance with International Standards on Auditing and approved Auditing Standards of the Federación de Collegios de Contadores Publicos. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Medina Construcción as of December 31, 20X3, and the results of its operations for the year then ended in conformity with International Accounting Standards and comply with Venezuela's national law, applied on a basis consistent with that of the preceding year. Jorge Leyva, LCP November 13, 20X4 International Center 456 Alhambra Calabozo, Venezuela

Other information:

1 Medina is presenting comparative financial statements

2 During 20X3, Medina changed its method of accounting for long-term construction contracts and properly reflected the effect of the change in the current year's financial statements and restated the prior year's financial statements. Leyva is satisfied with Medina's justification for making the change. The change is discussed in footnote number 8 to the report.

3 Leyva was unable to perform normal accounts receivable confirmation procedures, but alternate procedures were used to satisfy Leyva as to the validity of the receivables.

4 Medina Construcción is the defendant in a litigation, the outcome of which is highly uncertain. If the case is settled in favor of the plaintiff, Medina will be required to pay a substantial amount of cash, which might require the sale of certain fixed assets. The litigation and the possible effects have been properly disclosed in footnote number 11 to the report.

5 Medina issued debenture bonds payable on January 31, 20X6, in Venezuela Bolivars (VB) for the amount of VB1,000,000,000. The funds obtained from the issuance were used to finance the expansion of plant facilities. The debenture agreement restricts the payment of future cash dividends to earnings after December 31, 20X6. Medina declined to disclose this essential data in the footnotes to the financial statements.

Required:

A. Consider all facts given and rewrite the auditor's report in acceptable and complete format incorporating any necessary departures form the standard unqualified report.

B. Explain any items included in "Other Information" that need not be part of the auditor's report.