It is nоw 20X2, аnd yоu аre аn auditоr at Williams & Company, a CPA firm. The audit partner, Mr. Williams, has asked you to handle a potential new audit engagement. Background Sell Well Company Limited is a private company that imports foodstuffs from Southeast Asia and Europe and distributes them to supermarket chains, discount stores, and corner stores. The company was founded by Mr. Chandler 30 years ago and has experienced steady growth. The Business Transaction Mr. Williams, the senior audit partner, is a close friend of Mr. Chandler and has been advising him on his personal retirement plan. He also prepared a three-year business plan, including profit forecasts and cash flow projections, based on information provided by Mr. Chandler. Using this information, Mr. Williams introduced one of Williams & Company’s audit clients, Great Profit Holdings Limited, to Mr. Chandler. After negotiations, Great Profit Holdings acquired 100% of Sell Well Company Limited for $60 million, based on a prospective price/earnings ratio of 2× the company’s 20X2 profit forecast (forecasted at no less than $30 million). Williams & Company reviewed this profit forecast as part of the transaction. The final purchase price will be determined based on the audited financial statements for the year ending December 31, 20X1, which will be audited by Williams & Company. Under the agreement: If the audited net profit is below the forecasted net profit, Mr. Chandler must reimburse Great Profit Holdings twice the shortfall. Mr. Chandler will remain CEO of Sell Well Company Limited, earning a $90,000 monthly salary until the completion of the company’s 20X1 audit. Audit Arrangements You recently met with Miss Li, the newly appointed Financial Controller of Sell Well Company Limited. She was hired one month ago to replace the previous accountant, who retired after 20 years of service. Miss Li’s primary focus is overseeing the conversion of the company’s accounting system to a newly acquired state-of-the-art system. Due to her workload, the responsibility for preparing the annual financial statements for audit will be delegated to the accounting supervisor. Required: 1. Identify and briefly describe at least two auditor independence issues related to this audit engagement for Sell Well Company Limited. For each issue, clearly explain why it threatens auditor independence and briefly discuss the potential consequences for both the auditor and financial reporting if the issue is not addressed. (10 points) 2. Identify and briefly explain at least two factors that increase the risk of material misstatement in the unaudited financial statements. For each factor, make sure your description clearly indicates why this factor creates a higher risk. (5 points)
This аssessment is where yоu will cоmpоse your finаl compаre/contrast essay, which is worth a total of 100 points and will be graded in accordance with the English department rubric. For this essay, you are allowed to use your printed prewriting worksheet with your answers to the prewriting questions. Before beginning the assessment, please show both the front and back of your prewriting worksheet to the webcam. This is an independent assessment; do not work with others or consult any resources aside from the approved materials. You may not use a pre-written essay or access any web resources during this assessment. Your finished essay must be 600-900 words and follow the structure/guidance requirements provided in the lesson materials. Please use MLA formatting for the font, heading, title, and source citations in your essay. You are not required to double space, include a page number, or include a hanging indent. However, please ensure that your essay includes both in-text citations as well as a works cited section at the end of the essay. Technical Support Need help using Canvas Quizzes? If so, please review the following page: Canvas Resources for Students - Quizzes. Need help using Honorlock? Visit HonorPrep | 7 Minute Guided Tour or [/courses/162373/pages/g607fa421d6ca39cba08f7b72c81dba73]Honorlock Proctoring: Overview for Students