Question:
Rem Inc. produces electronic components for sale to manufacturers of radios, television sets, and digital sound systems. In connection with her examination of Rem's financial statements for the year ended December 31, 2007, Maggie Zeen, CPA, completed field work 2 weeks ago. Ms. Zeen now is evaluating the significance of the following items prior to preparing her auditor's report. Except as noted, none of these items have been disclosed in the financial statements or notes.
Situation: A major electronics firm has introduced a line of products that will compete directly with Rem's priamry line, now being produced in the specially designed new plant. Because of manufacturing innovations, the competitor's line will be of comparable quality of field work. Ms. Zeen reat the announcement in the newspaper and discussed the situation by telephone with Rem executives. Rem will meet the lower prices that are high enough to cover variable manufacturing and selling expenses but will permit recovery of only a portion of fixed costs.
Discuss any additional disclosures in the financial statements and notes that the auditor should reccomment to the client. (The cumulative effect of the four items should not be considered).