Eyemax Corporation

Case 1 (12.1--EyeMax Corporation)

[1] Which of the following three alternatives best describes the conditions under which you would issue a clean opinion for EyeMax?

B. I would be willing to issue a clean opinion without any adjustments.

I would be ok with making this choice as the net overstatement of unadjusted misstatements is less than the tolerable misstatement threshold set by firm policy.

[2] Assume now that the client has decided that they will make an adjustment of up to $250,000 to their financial statements. Please decompose the total adjustment you would recommend into the individual account classifications included on the Summary of Unadjusted Misstatements in the space provided below.

I would focus the adjustment allowance into Repair and Maintenance expenses as that is the largest misstatement (and thus more gross in my opinion) but also easily fixes this issue that carried over from a previous year. If it isn't fixed it will continue into the next year causing more issues (and likely NOT be corrected in its entirety due to the compounded larger size). Therefore I would have EyeMax make adjustments on the misstatements there as that, in the following year, there is less issues to worry about unless they make the same mistake again.

Another solution I could offer is to focus on a partial adjustment to Repair and Maintenance and a full solution to Warranty Expenses as verbal commitments for up to two years when the policy is only one is not satisfactory to me. While EyeMax HAS been staying true to their commitments, it would be best overall for the company if the policy is as it states. Therefore, the one year policy should be followed strictly, and while it is good (and nice) of EyeMax to follow up for up to two years—it seems backwards and almost