Question :

Draft the appropriate audit opinion provided the subsequent scenarios. Every situation is independent of the other situations.

1. Proli Footwear's management refuses to get the accounts receivable loss related to the bankruptcy of Moccasins For All.

2. The bank is expected to withdraw its financing due to:

a. The Company has projections that shown continued decrease in earnings and reduced revenues; OR

b. The Company has violated get loan covenants that the bank will not waive.

3. The auditors want to accentuate, 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 because of a fire intentionally started by a disgruntled employee. The net damage is estimated to be $1,800,000 that of which Proli Footwear's insurance company may cover, less the 10% deductable. Overall Proli Footwear can 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 get the warranty expense adjustments proposed by West & Fair.

Throughout the earlier year Proli has been evaluate their warranties payable according to 0.2% of their annual total sales. Upon further investigation by our audit staff member, it was evaluate that since 2004, Proli Footwear's warranties payable have been 0.3 percent of their annual net sales. Also $102,000 worth of warranty liabilities was debited to other assets erroneously. Because of the miscalculation or the warranty liability percentage and the incorrect allocation of warranty liabilities, we are issuing an adverse set for Proli Footwear's warranty liability.