Departures from GAAP. On January 1, Graham Company purchased land (the site of a new building) for $100,000. Soon thereafter, the Highway Department announced a new feeder roadway route that would run alongside the site. The effect was a dramatic increase in local property values. Nearby comparable land sold for $700,000 in December of the current year. Graham shows the land at $700,000 in its accounts, and, after reduction for implicit taxes at 33 percent, the fixed asset total is $400,000 larger, with the same amount shown separately in a stockholders' equity account titled "Current value increment." The valuation is fully disclosed in a footnote to the financial statements, along with a letter from a certified property appraiser attesting to the $700,000 value.
Required:
a. Write the appropriate audit report, assuming you believe the departure from GAAP is material but not enough to cause you to give an adverse opinion.
b. Write the appropriate report, assuming you believe an adverse opinion is necessary.
c. For discussion: Should you (could you) issue a report conforming to Rule 203 of the AICPA Code of Professional Conduct?