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BILTRITE PRACTICE CASE

Module XV of the Biltrite audit practice case contains an audit report exercise. This exercise may be completed at this time.

Module XV: Audit Report The Denise Vaughan audit team completed its audit field work on February 15, 2010. A conference was held on that date involving members of the audit firm and Biltrite management. Participants in the conference were Denise Vaughan, partner in charge of the Biltrite engagement; Carolyn Volmar, audit manager; Richard Derick, in-charge auditor; Trevor Lawton, Biltrite’s CEO; Gerald Groth, Biltrite’s controller; and Marlene McAfee, Biltrite’s trea- surer. The Biltrite representatives agreed to all of the audit adjustments and reclassifications proposed by the audit team, and they agreed to reflect them in the December 31, 2009, financial statements. They also agreed to modify and/or add footnote disclosures as recommended by the audit team.

At the conclusion of the conference, the audit team obtained a client repre- sentation letter from Biltrite management and presented management with a copy of the “significant deficiencies” letter outlining discovered internal control deficiencies. The original of this letter was sent to Biltrite’s audit committee.

The legal action initiated against Biltrite by Rollfast, a competitor, for alleged patent infringement, was not yet settled as of February 15. Because the letter obtained by Derick from Biltrite’s outside legal counsel was inconclusive as to the probable outcome of this action, Derick requested an informal con- ference with the attorney handling Biltrite’s case. This conference was con- vened on February 12, and the participants were Joel Haskins, the attorney, Gerald Groth, Denise Vaughan, and Richard Derick.

Haskins exhibited a degree of pessimism that produced considerable uncer- tainty as to the probable outcome of the litigation. Inasmuch as the amount of loss could be quite substantial, and the probability of an unfavorable outcome was more than remote but less than likely, Groth agreed to disclose the matter in a footnote to the 2009 financial statements.

Notwithstanding the liquidity problems and loan default, Biltrite has been assured by Bank Two management that the bank plans no foreclosure action, provided Biltrite can restore the minimum required bank balance and con- tinues to earn profits. Moreover, management’s expressed plans for dealing with the crisis and continued sales growth during January 2010 have convinced Denise Vaughan that an explanatory paragraph expressing substantial doubt as to continued existence is not necessary.

No scope restrictions were encountered during the audit, either imposed or otherwise. Also assume that Biltrite did not change accounting principles in either 2008 or 2009.

Requirements 1. Using the spreadsheet program and downloaded data, retrieve the file

labeled “Report.” 2. Modify the report as appropriate to conform to the Biltrite audit results. 3. Print the audit report. 4. Have the audit partner sign the audit report.

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