Manager Infrastructure + Finance
Mr. Tom Lastname January 25, 2008
Manager of Accounting, YSSB Health Inc.
123 The Street, Suite 101
Toronto, ON M1X 1X1
Dear Mr. Lastname:
Re: Review of Notes to Financial Statements, Fiscal Year Ending December 31, 2007
YSSB Health Inc. (“YSSB”) retained Kitscha + Associates (“Kitscha”) to review a set of notes pertaining to YSSB’s financial statements for the fiscal year ending December 31, 2007. Kitscha has assumed that all financial reporting should follow Canadian GAAP.
It is Kitscha’s understanding that YSSB’s financial statements will serve at least two purposes: 1) Being used by YSSB’s owners to determine the bonus amounts, if any, to distribute to employees; and 2) Potentially being provided to the Morgan Bank (the “Bank), in satisfaction of a condition pursuant to a line of credit (“LOC”) provided by the Bank in favor of YSSB. Without having reviewed the terms of the LOC, Kitscha has been advised that the LOC has two the additional requirements, being: i) YSSB’s debt-to-equity ratio may not exceed 1.00; and ii) the Bank must approve all dividend distributions and profit sharing amongst the owners.
This letter provides Kitscha’s professional opinion regarding the following items: 1) the general form of the financial statements; 2) the obligations to the Bank; 3) revenue recognition; 4) collection of life insurance premiums; and 5) a newly developed legal claim against YSSB.
1. General Form of the Financial Statements
Kitscha understands that YSSB has adopted the cash method of accounting for sales and expenses. Since this method does not conform to GAAP, it is Kitscha’s opinion that this may pose problems for the user of these reports. For example, by applying GAAP, an objective approach would be taken when determining the employee bonus amounts. Additionally, the Bank will likely require that the...
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