Question

Indicate the type of report for Gelato Bros., Inc. leasing its manufacturing facility from a partnership controlled by the chief executive officer and major shareholder of Gelato. The rental terms are in excess of rental terms for similar buildings in the area, and the company refuses to disclose the related-party transaction in the footnotes. What type of report is this?

1) Audit report
2) Review report
3) Compilation report
4) Agreed-upon procedures report

Answer 1

The type of report for Gelato Bros., Inc. leasing its manufacturing facility from a partnership controlled by the CEO and major shareholder is an Audit report.

Step-by-step explanation:

The type of report in this scenario is an Audit report. An audit report is a detailed examination of a company's financial records and internal controls conducted by an independent auditor.

In this specific situation, Gelato Bros., Inc. is leasing its manufacturing facility from a partnership controlled by its chief executive officer and major shareholder. The fact that the rental terms are higher than the market average and the company refuses to disclose the related-party transaction in the footnotes indicate a potential conflict of interest.

The independent auditor, in the form of an audit report, would be responsible for identifying and disclosing such related-party transactions and ensuring that they are accurately reported in the financial statements.