Miller & Bell (M&B) is a medium-size accounting firm that was recently approached by Mints, a candy company, to take on their yearend audit engagement. The Director of Marketing at Mints, Valerie, suggested M&B since she had heard good things about M&B and her cousin is a staff accountant for M&B. The main partner at M&B has gathered the following information about Mints:

Mints has eight shareholders. Greg, a creative entrepreneur, started Mints in 2001 and owns 51% of the company, while the remaining 49% is split equally between seven shareholders. Most shareholders are passive investors, but Greg is actively involved in the operations of Mints, as he is currently the CFO.

Mints’ candy is very popular in Europe, so a large part of the sales are made in euros. Mints tries to manage the foreign exchange risk by entering into complex cash flow hedges and purchasing forward contracts in euros.

Mints is looking for a new auditor, as they disagreed with their previous auditor about their revenue recognition policy. Mints indicated that their previous auditor was too conservative. Mints has been showing a profit for the past two years, but it did run into some financial difficulties three years ago. Due to the financial difficulties, Mints had to obtain additional financing from the bank. As a result, Mints is subject to additional debt covenants, and the bank requires an audit of its financial statements to be performed.

Required:
You work as a senior auditor for M&B, and the partner has asked you to prepare a report that discusses what should be considered in M&B’s decision to accept or decline Mints’ audit engagement. Based on the information provided above, prepare a report to the M&B partner as requested, which discusses each element, explains why it is relevant to the decision, and explains whether the element presents a high/moderate/ low risk for accepting the engagement. Use the table below to identify the key elements that should be covered in your report.