$6$C$-2.$ Required$$p$.294--$In the overall audit strategy for the audit of KCN in this

appendix, there is a section on significant risks. For each of the risks, identify the

implications and potential responses.

SIGNIFICANT RISKS

RISKS IMPLICATIONS AND RESPONSE

$1.$ KCN has engaged in a strategy to sell

to customers with higher credit risks.

$2.$ The officers of the company receive

significant bonuses based on quarterly

results.

$6$C$-3.$ Required$$p$.294$The overall audit strategy for the audit of KCN$,$ Inc. in this

Appendix includes a section on significant accounting and auditing matters. The second

matter described involves capitalizing the costs of developing a software program for

sale.

a$.$ Research this issue and write a brief memorandum for the working papers describing

the issue and summarizing the appropriate method for development costs. Include a word

document here with your response.

b$.$ Based on your research, describe the major audit issue that you believe will be

involved in auditing the software development costs. Include a word document here with

your response.