Star Appliance Corp has requested that Malfie Thomas, CPA provide a report, including a debt compliance letter, to Great Northern Bank about the existence or nonexistence of certain loan conditions. The conditions to be reported on are the working
capital ratio, dividends paid on preferred stock, aging of accounts receivable, and the competence of management. This is Malfie's first experience with Star appliance. Should Malfie accept this engagement? Provide justification for your answer.
It would be appropriate for Malfie to provide a report to Great Northern Bank on all of the conditions except the competency of management. Reports on the working capital ratio, dividends paid on preferred stock, and aging of accounts receivable are factual matters within a normal auditor's competence. Reporting on the competence of management is highly subjective and should not ordinarily be in a debt compliance letter.
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