I. Risk Assessment:

STUDENT 1 (Name):______________________________

NOTE: You will need to review the Financial statements provided see file "Exercise #1- Financial Statements-Orange Inc" attached in Blackboard.

Background History

We will be working on the Audit of Orange Inc. The Company is a technology company wherethe company has a physical device that it sells to automotive companies and retail stores that allows doors to be electronically locked and opened using the "Orange Secure Open" App and related optional remote/device eliminating the need for keys and also integrates with any security service such as ADT, Ring, etc."

Our Audit Firm "Queens College Auditors LLP" is taking over the audit from another audit firm "Simpson Auditor LLP." The company was not happy with the previous auditor and due to networking with the CEO on a Golf Trip the Partner on our Job "Frankie Georgiou" won us the client.

We will be working on this audit from top to bottom including risk assessment, setting materiality, reviewing controls, preparing a flow chart, auditing Cash, Account Receivables/Revenue, Inventories, Liabilities, PP&E.

E-mail from the Partner:

Hi Team,

I hope all is well. Sorry I couldn't be there but I have a number of client meetings today and over the next few months that prevent me from being there in person. Prof. Qamar will be working with you throughout the audit to help you reach the right conclusions.

Remember this is a new client and we want to keep them a happy but also want to complete an audit in accordance with PCAOB regulations, and not sacrifice audit quality. Our audit firm is subject to PCAOB inspection and we could be inspected at any time including this audit. Regardless our firm is always dedicated to customer service and quality. Also remember to reach out to the prior auditor and review their workpapers from prior year.

Orange Inc. is a company founded in 1999. It is a technology company that has thrived in recent years by focusing on products related to physical and IT service. They are part of a larger umbrella organization called Global Orange and Pear Group. The parent owns more than 25% of the Stock but the company's remaining ownership shares are traded on the NYSE.

The company is a new tech company under a new law that allows them not to have an audit of internal controls under SOX (so we will just be performing a Financial Statement only audit, not required to test internal controls), also the company is currently exempt from paying income taxes but this will expire next year. We should make sure that the tax status has not changed.

The CEO, Adam Abdullah, is a former Google executive a smart guy but also very impatient when it comes to questions from auditors. The CFO is Jonah Yahyah who graduated from Baruch with an MBA and has one year of work experience at Deloitte & Touche as an associate before starting with the Company (his only work experience). Jonah is the CEO's cousin. The CEO founded the company with his brother and best friend in the late 2000's. The company sputtered along until 2010 when the company gained some large customers like Toyota and Tesla. In 2013 The Company was acquired by Global Orange and Pear Group and became part of the current organization we know. Although it is a partially owned subsidiary the Parent who is located in Abu Dhabi is very hands off and management basically runs it like an independent company.

The BOD (Board of Directors) is made up of 12 people which include- The CEO, CFO, the CEO's brother Moses Abdullah, and the CEO's father Jacob Abdullah. The remaining board members are set by the Parent and a few independent directors elected by shareholders. The Parent owns about 25% and CEO owns about 20% of the company.

The company is almost 20+ years old but still runs like a start-up in many ways. The manuals and policies haven't been reviewed or changed in 10 years or so (since the financial crisis). They have outsourced payroll to ADP, but they still handle account receivables and sales in house through their website and APP. They have been known to bill customers incorrect amounts, or send bills to the wrong customers sometimes.The company did have a big IT breach a few years ago. The company had a recall a few years ago for one of their products and recently settled a related lawsuit. The company has 50-100 full time employees and many contractors on a part time basis. The company has a small production facility in the US and another small R&D facility in China. The company shares headquarter space with the parent in NYC near time square. The company purchases Inventory but also makes some unique production parts. The company focuses primarily on corporate accounts but also is trying to grow its consumer business. The recording of revenue has a low level of complexity. The regulatory environment is moderately complicated and risky. The controls were tested last year and there were some control deficiencies found last year, but no material weaknesses or significant deficiencies were found.

Frankie Georgiou|Partner

Queens College Auditors LLP

65-30 Kissena Blvd. Flushing, NY11367

QUESTIONS to ANSWER for STUDENT 1:

1)Review the Financial Statements provided to each group on Blackboard (You may use laptops for this exercise).[ Focus on: a) Is the company Profitable b) Does the company have a lot of liabilities c) Are the cash flows positive d) How is the company using its cash e) ReadNote 1 to learn about if the company has any parents or subsidiaries f) Read note 1 to understand the products the company sells g) Scan the other notes for any potential related party transactions h) scan the notes for any lawsuits.) Summarize some of the information you found the most relevant below.

1.______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

2)Determine the following risks"AR=IR*CR*DR":(Use the 2 tables to help you determine what risk settings are appropriate. Table 1 gives you RMM- plug that vale into table 2)

-(HINT 1: Determine RMM first, then AR and then back into DR)

-(HINT 2: Use the facts above to determine IR & CR, Use your auditor judgement to determine AR & DR, remember auditors don't want to take too much risk, but also don't want to be in efficient.)

-i.Inherent Risk(Look at the notes and see if there is anything risky about this audit client, is it profitable, liabilities vs assets, any lawsuits, significant related party transactions. Think about what we discussed in Chap 3 & 5 about what is low inherent risk and what is high inherent risk.)

-i.__________________________________

-ii.Control Risk(Look at the information above to gauge information about the company's controls are they working/not working. Think about what we discussed in Chap 3 & 5 about what is low control risk and what is high control risk.)

ii.__________________________________

-iii. RMM (Risk of Material Misstatement):_____________(Should be IR x CR you determined above, see table below for guidance.)

-iv.Audit Risk(Should generally be only choices (a), (b), or (c))(Should be based on if the client is a publicly traded company, how much risk you are willing to take, complexity of the client, size of the company, chance of lawsuits, size of our audit firm, etc.)

-iv.__________________________________

-v.Detection Risk(Remember you are generally backing into this figure after you figure out inherent risk, control risk, and audit risk.)

v.__________________________________

* Tables are from the PowerPoint slides for Chapter 5.

3)Based on Reading the Financial statements and the information above do you think there are any potential Significant or Fraud Risks?(If so what are they, remember not every audit has specific significant or Fraud risks.) [Look up the definition of a fraud risk and significant risk to help you answer this question.]

3.______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

4)For your audit approach would you choose to test controls or primarily perform substantive procedures based on your risk assessment in Q1 above, what would your mix of control testing to substantive testing be?(Pick 1 letter & Explain why briefly.)

(a)50% controls, and 50% substantive

(b) 20% Controls and 80% substantive

(c) 0% Controls and 100% substantive

(d) Other, Explain your percentages

4.______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

FINANCIAL DATA :

UNITEDSTATESSECURITIESANDEXCHANGECOMMISSIONWashington,D.C.20549

ANNUALAUDITEDREPORTFORMX

PARTX

FACINGPAGE

OMBAPPROVAL

OMBNumber:XXXX

Expires:March31, XX

Estimatedaverageburden

hoursper response......XX

SECFILENUMBER

8-XXXX

InformationRequiredofBrokersandDealersPursuanttoSectionXofthe

SecuritiesExchangeActof1934

REPORTFORTHE PERIODBEGINNINGJanuary1,2020

MM/DD/YY

ANDENDINGDecember31,2020

MMIDD/YY

A.REGISTRANTIDENTIFICATION

NAMEOFBROKER-DEALER:ORANGE, Inc.OFFICIALUSEONLY

ADDRESSOF PRINCIPALPLACEOFBUSINESS:(DonotuseP.O.BoxNo.)

900 Time Square

FIRMJ.D.NO.

(No.andStreet)

New YorkNY11017

(City)(State)(ZipCode)

NAMEANDTELEPHONENUMBEROFPERSONTOCONTACTIN REGARDTOTillSREPORT

B.ACCOUNTANTIDENTIFICATION

(AreaCode-TelephoneNumber)

INDEPENDENTPUBLICACCOUNTANTwhoseopinioniscontainedin thisReport*

Queens College Auditors LLP

(Name-ifindividual,statelast,first,middlename)

65-30 Kissena Blvd.Flushing,NY11367

(Address)(City)(State)(ZipCode)

CHECKONE:

0CertifiedPublicAccountant

0PublicAccountant

0AccountantnotresidentinUnitedStatesoranyofitspossessions.

FOROFFICIALUSEONLY

*Claimsforexemptionfromtherequirementthattheannualreportbecoveredbytheopinionofanindependentpublicaccountantmustbesupportedbyastatementqffactsandcircumstancesreliedonasthebasisfortheexemption.SeeSection240.17a-5(e)(2)

December 31,2020

Assets

Cashand cashequivalents$30,741,204

Inventories5,500,042

Property Plan & Equipment

(Net of Accum. Depr. Of $700,000)5,710,753

Accounts receivable

(Net of $124, 280 allowance for uncollectible Accts.)51,718,517

Investments at cost1,634,347

Other assets1,175,094

Total assets$96,479,957

Liabilities and Member'sEquity

Liabilities:

Notes Payable$25,139,690

Accounts payable and accrued expenses180,579

Long Term Debt20,000,000

Total liabilities45,320,269

Stockholder's Equity:

Common Stock (no Par Stock, 1 million shares outstanding)48,130,688

Retained Earnings3,029,000

Total Stockholder's Equity51,159,688

Total liabilities and Stockholder's equity$96,479,957

See accompanyingnotesto financialstatements.

Year ended December 31,

2020

Revenues

Technology Income (Net of Sales Returns and Discounts)

$103,174,531

Dividend and Interest Income

70,597

Other revenue

4,159

Total Revenues

103,249,287

Expenses

Cost of Goods Sold

51,832,849

Fees to Parent for rent, staff, etc.

1,200,000

Legal, professional, audit, and regulatory fees

207,398

Salary Expense

1,014,336

Interest expense

15,526

Depreciation & Amortization expense

70,000

Other expenses

65,646

Total Expenses

54,405,755

Settlement expense (from lawsuit)

3,275,101

Net Income$45,568,431

Earnings per share (No Dilution)$45.57

See accompanyingnotesto financialstatements.

1.Organization and Nature of Business

ORANGE Inc. (the "Company"), a subsidiary of Global ORANGE & Pear Inc. (the "Parent"), was organized in December 1999 in the State of Delaware. A certain number of shares are traded on the NYSE and the company is registered with the SEC.

The Company is an IT company that has several lines of businesses specificallythe company has a physical device that it sells to automotive companies and retail stores that allows doors to be electronically locked and opened using the "Maximum Secure Open" App and related optional remote/device eliminating the need for keys and also integrates with any security service such as ADT, Ring, etc. This Maximum secure device has been a fast selling and growing business in recent years.

2.Summary of Significant Accounting Policies

Use of Estimates- Thepreparation of the financial statementsinconformitywithU.S.generally acceptedaccountingprinciples ("GAAP")requiresmanagementtomakeestimatesand assumptions thataffectthereportedamountsof assetsandliabilitiesanddisclosureofcontingent assetsandliabilitiesatthedateofthefinancial statementsand thereportedamounts of revenues and expenses during thereporting period. Actualresults could differ fromthose estimates.

Revenues- Revenues and related expenses are recordedon an accrual basis. The revenue is recorded based on the contract with the customer. The physical device revenue is recorded as each device is sold and recorded based on payment and delivery to customers.

Foreign Currency Translation:The books and records of the Company are maintained in U.S. dollars.

PP&E-Fixedassetsconsistof computerequipmentthatisstatedatcostlessaccumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of the assets,generally fiveto tenyears.Depreciation expense for theyearended December31, 2020 totaled $70,000.

CashandCashEquivalents-Forpurposesofthestatementofcashflows, cashinvestmentswitha maturity, atdate of purchase, of three monthsorless are considered to becash equivalents. The company also holds mutual funds and money market investments which it believes are cash equivalents.

It is theCompany's policy to place its cashand cash equivalents in high quality financial institutions.At times these depositsmay exceedfederally insured limits.The Company does not believe significant credit risk existswith respectto these institutions.

AccountsReceivable-Accountsreceivablearestatedattheamountbilledtocustomers. Management's judgmentas to the level of probablelosses on existing accounts receivable involves

the consideration of current economic conditions,examinations of customers' credit worthiness, andevaluationofexistingrelationships.Whenitisdeterminedthatanaccountsreceivablemay notbecollectible,anallowancefor doubtfulaccountsisestablished.AsofDecember31,2020,the company applied a percentage of accounts receivable method and determined that 10% of accounts receivables were not collectible. Account receivables are reported net on the balance sheet.

Goodwill- The company recorded $90M of Goodwill during the year. This was related to a merger/acquisition transaction with an affiliated company, and related to the expectation of management of synergies between the two companies.

FairValueofFinancialInstruments-FinancialAccountingStandardsBoard("FASB")Accounting StandardsCodification("ASC")820 definesfairvalue,establishesaframeworkformeasuringfair value,andestablishesafairvaluehierarchywhichprioritizestheinputstovaluationtechniques.

Fairvalueisthepricethatwouldbereceivedtosellanassetorpaid totransferaliabilityinan orderly transaction between market participants at the measurement date.A fair value measurement assumes that the transaction to sell the assetor transfer theliability occurs in the principal market for the asset or liability or,inthe absence of a principal market, the most advantageousmarket.Valuation techniques that are consistent withthe market, income or cost approach, as specified byFASB ASC 820, are used to measure fair value.

Thefairvaluehierarchy prioritizestheinputsto valuationtechniques usedtomeasurefairvalue into three broad levels:

Level1inputsarequotedprices(unadjusted)inactivemarketsforidenticalassetsor liabilities the Company has the ability to access.

Level2inputsareinputs(otherthanquotedpricesincludedwithinlevel1)thatare observable for the asset or liability, either directly or indirectly.

Level3areunobservableinputsfortheassetorliabilityandrelyonmanagement'sown assumptionsabouttheassumptionsthatmarketparticipantswoulduseinpricingtheasset

or liability.

Money market funds are recordedat fair value based on the marketapproachusing level1 inputs. At December 31, 2020,money market funds totaling approximately $15,000,115 are recorded in cash and cash equivalents.

IncomeTaxes-Asa new tech company under the Technology Start- up Act,theearningsandlossesoftheCompanyare tax exempt for twenty years;therefore,nofederal income tax provision or benefithasbeenincludedinthesefinancialstatements.The Company'staxreturnandthe amounts of allocable profits and losses are subjecttoexamination bytaxing authorities. Accordingly, ifsuchexaminationsresultinchangesintheprofitsorlosses,thetaxliabilityofthe members could change.

4.Risks

Concentration of CreditRisk

The Company is engaged in various IT servicesin which counterparties primarilyincludea few large companies such as Tesla and Sears.Intheeventcounterpartiesdonotfulfilltheirobligations,the Companymaybeexposedtorisk.Theriskofdefaultdependsonthecreditworthinessofthe counterparty.ItistheCompany'spolicytocontinuallymonitorits counterpartyrisk.TheCompanydoesnotanticipatenon-performanceby counterparties and maintains a policy of reviewingthe credit standingof all customers with whomit conductsbusiness.

5.Related Parties

The Company and Parenthave an Administrative Services Agreement for the purpose ofdelineating the sharedemployees, services and facilities. The Company recognizes a monthly management fee of $100,000 for such services. As of December31, 2020, the Company has paid to USCA a total amountof$1,200,000.Actualresultscoulddifferfromthosereportedintheabsenceofthis arrangement. Either company may terminate this agreement byproviding thirty days'notice to the other.

The Company also occasionally makes loans to employees. During the year the company loaned the CEO $1 million dollars in January and that loan was paid off on December 31, 2020.

The company also has revenue agreements with the Parent, by which the Company provides IT services to the Parent for the Parent to make sales to its own customers. For the year ended December 31, 2020 that revenue amounted to $3 million of Technology Revenue. Of this revenue $300 thousand was included in accounts receivable at the end of the year.

6. Line of Credit/Notes Payable

InJanuary2020,theCompanyenteredintoarevolvingnoteandcashsubordinationagreement withabank,whichallowsfortotaladvancesupto$1,000,000.Accruedandunpaidintereston theadvancesispayablemonthlyattheprimerate ineffect fromday todayplus3.00%.Allprincipalandoutstandinginterestisdueand payable inJanuary 2021, the maturity date. AtDecember31,

2020 therewas no balance outstanding on the revolving note.

The Company has a few Notes Payables with a few banks outstanding at the end of the year. The company uses Notes Payables to finance a portion of the company's short-term operations. The average rate of borrowing for Notes Payables was 11% for the year ended December 31, 2020 and was 8% for the year ended December 31, 2019.

7. Litigation Notes

Inthenormalcourseofbusiness,theCompanyissubjecttovariousclaims,legal actions,and disputes.TheCompanyprovidesforlosses,ifany,intheyearinwhichtheycanbereasonably estimated. In 2019 there was a lawsuit claiming that due to a data breach at the company's server's customer information was inadvertently leaked, and the security of some customer accounts (passwords, and access to facilities) was compromised resulting in various damages related to the customers having to perform various processes to secure their information.

InDecember2020,the CompanyenteredintoaSettlementAgreementwitha claimantforthepaymentofThreeMillionSixHundredThousandDollars ($3,600,000) infulland final settlement of all claims that were or couldhave beenassertedinthe Lawsuit. Other lawsuits are pending and the Company believes those cases will not result in any additional payments at this time.

8. Stock-based Compensation

ORANGE Inc. provides stock-options to certain employees (the CEO, CFO, COO) of the Company. These options permit the certain employees to buy shares of the company at set price. If share price increases above a certain level the options come "in-to the money," meaning they become profitable for the certain employees to exercise. Typically, the stock-options vest during the period of requisite service up to five years. Under U.S. GAAP guidance the stock-options are re-measured at the end of every reporting period, and accordingly, any changes in the fair value of such post-termination payments are allocated to the Company. The cost of granting stock-based compensation is included in salaries expense. For the year ended December 31, 2020, the Partnership recognized stock-based compensation expense for such awards of $200,000, which is included in salaries expense in the Company's statement of operations. At year end the company is potentially liable to issue additional stock options to certain employees if certain performance goals related to sales are met. These options could result in additional salaries expense of up to $1million dollars.

9. Subsequent Event

ManagementhasevaluatedsubsequenteventsthroughDecember31,2021whichisthedatethat thefinancialstatementswereavailableforissuance,andhasdeterminedthatthereareno othersubsequenteventstobereported.