To: Alan and Bart Ayr From: W&T Accounting LLP Re: Revision of AyrGlen Context: From what you have described, there are four main users of the financial statements; the shareholders (Alan, Bart and David), the bank, and the tax revenue agency. As stated in your note to us, you wantto defer as much tax as possible so a reduction in net income before taxes is preferable. However, this presents a conflicting objective with the bank who might want to see a high net income, but more likely a high cash flow from operations because they want to ensure that AyrGlen is generating cash from normal operation and therefore in a good financial position to pay off the large debt. Nonetheless, the overriding objective is to minimize taxes so that taxes expense and taxes payable would be reduced, which means more cash on hand which will be beneficial in the eyes the bank officer and help maintain AyrGlen’s high credit rating. AyrGlen faces one main constraint on their financial statements. Due to the fact that the bank requires audited statements therefore AyrGlen must follow GAAP. I have identified several issues with the company’s policies that may obstruct the company from reaching this goal. Collection of Payment and Revenue Recognition: The collection policy of 60 days after the goods have been delivered to the customerswill harm the company’s cash flow. Under the assumption that the majority of the customers would pay near the end of the 60 day grace period, AyrGlen has a relatively long collection period, and therefore inflow of cash is delayed. As a result of this, the bank officer maybe concerned because if everyone paid around the 60 day mark (2 months), AyrGlen might not be able to paymonthly interest fees. From your note, 8% of the accounts receivables are not paid within 60 days (The 90% paid within 60 days + 2% never paid + Remaining 8% = 100% of