Auditors-Are-Us LLC, audited the financial statements of LINKCO Industries, a private company, for the year ended December 31, 2020. Materiality threshold was $500,000. The following issues were encountered during the audit:
1. Management understated Income Tax Expense by $800,000. The auditors' Proposed Adjusting Journal Entry was accepted. This was a matter that involved especially challenging, subjective and complex judgements.
2. Management revealed to the auditors that it had lost a customer - Alliance Industries - on June 1, 2021. This Customer accounted for 25% of LINKCOS Revenues in 2020.
3. LINKCO is a defendant in a lawsuit alleging patent infringement. This is adequately disclosed in the Notes to the Financial Statements but no provision for liability was recorded by Management. The auditors Proposed Adjusting Journal Entry for $1,000,000 was rejected by Management. Masco's Net Income is $8,000,000 in 2020. It had weighted average common shares outstanding of 200,000 and fully diluted shares of 400,000 during 2020.