Question 1: Using the company profile below, identify TWO material misstatement risks- either at the entity-level (i.e. risk of material misstatement at the overall financial statement level) or account assertion level. For each account or entity-level risk identified, briefly describe why it qualifies as risky.

Company Profile

Your audit firm has been engaged to issue an opinion on the financial statements of CNX Corporation which sells and leases office equipment. Initially, CNX focused on selling and leasing copiers but CNX is finding that its customers, as is the general trend, are becoming increasingly paperless and adopting cloud computing as opposed to maintaining their own servers. This change in the business environment has hurt CNXs sales of copiers, printers, and computer servers, and CNX is feeling the need to shift to selling and leasing cloud computing solutions to better serve its customers.

This is the first year that CNX failed to grow revenue. In response, the CEO Darren Paul, issued a press release stating, Our repositioning will necessarily require some additional expenses in the initial years, but we are confident that it will set the stage for CNX to exploit the explosive growth in cloud computing solutions."

Becauseof the shift towards cloud computing, CNX implementeda new ERP with a new billing system that better mapped to the new sales and revenue process. However, in the rush to make the shift to cloud computing, the ERP was implimented before pilot testing was completed.

CNX has a reputation for being a good corporate citizen, and the CEO and CFO serve on the boards of major charities. CNX has had the same accounting team in place for the past eight years and has lower than average employee turnover throughout its ranks.

This is your firm's fifth audit of CNX. There have been no disagreements over accounting issues in any of the previous audits.