Your Client,Huge Telephone Company (HTC),has Encountered Troubled Times,due to Deregulation

question 66

Essay

Your client,Huge Telephone Company (HTC),has encountered troubled times,due to deregulation.There is competition for local telephone business and long distance telephone business.The high speed lines for internet access provided via the telephone network have not been selling as well as expected.A new quirk is that many large cities are going to provide free wireless services by installing wireless transmitters on telephone poles,and is only offering to pay a pittance for the use of the telephone poles.HTC has been able to retain reasonable profits by cutting staff to a bare minimum and outsourcing many services.
However,due to several labour contracts and federal legislation that will increase services,you have doubts about the ability of the company to renew a major bond issue this coming year.
Required:
How does the above information affect the audit report?

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Definitions:

Accumulated Depreciation

The aggregate depreciation charges applied to a fixed asset from when it first came into operation.

Commercial Substance

A concept in accounting that occurs when the future cash flows or the economic circumstances of a transaction change as a result of the transaction.

Disposal

The act of getting rid of an asset through sale, trade, abandonment, or other methods, often resulting in the recognition of a gain or loss for accounting purposes.

Book Value

Book value is the net value of a company's assets as recorded on its balance sheet, often contrasted with market or actual value.