Departures from GAAP/ Audit Reports: Present a qualified audit report in proper form.
On January 1, Graham Company purchased land (the site of a new building) for $100,000. Soon thereafter, the Highway Department announced a new feeder roadway route that would run alongside the site. The effect was a dramatic increase in local property values. Nearby comparable land sold for $700,000 in December of the current year. Graham shows the land at $700,000 in its accounts, and, after reduction for implicit taxes at 33 percent, the fixed asset total is $400,000 larger, with the same amount shown separately in a stockholders equity account titled Current value increment. The valuation is fully disclosed in a footnote to the financial statements, along with a letter from a certified property appraiser attesting
to the $700,000 value.
Write the appropriate audit report, assuming you believe the departure from GAAP is material but not enough to cause you to give an adverse opinion.