You are the lead auditor working with Brace Corporation. You have found three misstatements in the course of your audit

[answerhappygod]

You are the lead auditor working with Brace Corporation. You
have found three misstatements in the course of your audit -
detailed below. You have met with management at Brace Corporation
and they agree with your findings. However, management at Brace
Corporation would like to make the adjustments in the current year
rather than making them to the prior year. Management believes that
adjustments to the financial statements will unduly adversely
affect shareholder and creditor confidence. A managing partner in
your firm has been advised of the situation. The partner has not
reviewed the findings in detail, but she agrees that adjustments
should not be made unless they are essential for a fair
representation.
When you began the audit you determined that the overall
financial statement materiality was $450,000. This amount
represents 4% of earnings. Performance materiality has been set to
75%. All amounts are given pre-tax. The amounts and types of
misstatements are included below:
Summary of Unadjusted Misstatements A
- Misstatement
Warranty expense - $100,000
Repair and maintenance expense - $135,000
Accounts Receivables (Sales) - $ 7,591
Net overstatement of earnings - $242,591
Warranty - verbal increase of the warranty period from two to
three years. They have been honoring these verbal arrangements.
Analysis of current data on this expense shows a $100,000 estimated
adjustment is needed.
Repair and Maintenance - $150,000 of costs related to an upgrade
were capitalized, but the upgrade has been scrapped due to
technical difficulties. Since 1/10th of the cost was depreciated in
the audit year, only the difference is understated.
Accounts Receivable - At year-end, Brace had receivables from
1,250 customers with a book value of approximately $6,500,000. A
random sample of 30 accounts was selected for positive
confirmation. All differences found appear to be unintentional. See
the details below
Item Cust No Cust
Name $ per Brace $ per
audit Difference
1 500007 Trans
Global 25,441
24,221 1,220
2 500111 Speedy
Dist 69,580 66,990
2,590
3 500438 MAN, Inc.
15,338 14,201 1,137
4 500715 Down Corp
41,656 39,012 2,644
5-30 All other
items 385,457
385,457 -


537,472 529,881 7,591
In your post, choose one of the following statements that gives
a clean opinion for Brace. Explain your justification.