Question:

Summarize the information from the predecessor auditor. How does this information impact overall IR? Explain your answer.

What is your assessment of inherent risk for Betas allowance for doubtful accounts (low, moderate, or high)? Explain your answer.

What is your overall IR assessment (low, moderate, or high)? Support your conclusion using the summary information in this document and the 2017 financial statements

2018 Audit of Beta Industries: Summary Information Assume you are an audit manager, today is May 15, 2018, and your public accounting firm is currently planning the 2018 financial statement audit of Beta Home Goods, a retailer in the home goods and supply industry. Beta is a public company with a 12/31 year-end, and a new client for your firm. The audit partner has asked you to help plan the audit for this new client using the following information obtained and summarized by the engagement team, and the ratios you will calculate in the multiple choice questions below: CEO. Sofia Ortega is Beta's CEO and chairperson of the company's board of directors. She has been in this position for six years, and previously served as the CEO of a smaller company in the same industry. Her background prior to these top-level executive positions was in lower levels of management at the smaller competitor. CFO. Michael Barkley, CPA, is Beta's CFO and a former auditor. He has worked at Beta in various accounting and financial reporting positions for nearly two decades, and has been CFO for six years. Executive Compensation. In the past, 90% of executive compensation was through a base salary, with 10% dependent on whether the company meets its Basic EPS forecast. Beta has changed the mix this year such that 60% is base salary, with 40% dependent on meeting the basic EPS forecast Accounting for investment securities. A material portion of Beta's investments is classified as Level 3 assets. Your helpful audit senior reminded you that if you do not remember asset classification from your financial accounting courses, a quick web search for Level 3 assets should help you determine if these investment securities are relatively easy or difficult to value Allowance for doubtful accounts. An inquiry conducted by the audit senior revealed that Beta has decreased the percentage of credit sales used to calculate the allowance from 6% of credit sales last year to 3 said they made the change because of a projected increase in days outstanding in reccivables for 2018 compared to last year Acquisitions. Last month, Beta completed the acquisition of a competitor, and plans to complete a second acquisition later this year. Your audit team believes the second . . . % in 2 018. The industry average is 6%. The C FO . isition is very likel y to be completed by the end o f this year. Collectively, the acquisitions will double Beta's assets compared to last ycear (neither of the acquired companies are the previous employer of Beta's CEO). Predecessor Auditor. Beta received unqualified opinions from its predecessor auditor for the past ten years. Beta switched auditors because the company wants its predecessor auditor to provide consulting services. The predecessor auditor agrees that this is the reason for the change in auditors. 2017 Audited Financial Statements. See the accompanying Excel file. Regulatory Environment. Your audit team does not expect significant changes in regulations for Beta's industry this year. The industry is not heavily regulated. Engagement Staffing. Eric Wall, a new staff auditor at your firm who was just assigned to the Beta audit, told you that his sister owns a material (to her) amount of Beta's common stock. Eric does not believe this impairs his independence and has requested to stay on the audit