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The following auditor's report was drafted by a staff accountant of Nathan and Matthew, CPAs, at the completion of the audit of the comparative financial statemetns of Monterey Partnership for the years ended December 31, 2013 and 2012. Monterey is a privately held company that prepares its financial statements on the income tax basis of accounting. The report was submitted to the engagement partner, who reviewd matters thoroughly and properly concluded that an unmodified opnion should be expressed. The draft of the report prepared by a staff accountant is as follows:

Auditor's Report

We have audited the accompanying financial statements of Monterey Partnership, which comprise the statements of assets, liabilities, and capital-income tax basis as of December 31, 2013, and the related statements of revenue and expenses-income tax basis and of changes in partners' capital accounts-income tax basis for the year then ended, and the related notes to the financial statements.

Auditor's Responsibility

We conducted our audit in accourdance with standards established by the AICPA. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. An audit also includes evaluating the appropriateness of accounting policies used as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present farily, in all material respects, the assets, liabilities, and capital of Monterey Partnership as of December 31, 2013, and its revenue and expenses and changes in partners' capital accounts for the year then ended in conformity with generally accepted accounting principles applied on a consistent basis.

Basis of Accounting

We draw attention to Note 2 of the financial statements, which describes the basis of accounting. The financial statements are prepared on the basis of accounting the Partnership uses for income tax purposes. Accordingly, these financial statements are not designed for those who do not have access to the Partnership's tax returns. Our opinion is not modified with respect to this matter. Nathan and Matthew, CPAs April 3, 2014

Required:

Identifiy the errors and omissions in the auditor's report as drafted by the staff accountant. Group the errors and omissions by paragraph, where applicable. Do not redraft the report. (AICPA, adapted)

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