(Understanding the entity and its environment) You have just been assigned as in-charge accountant on HipStar, Inc. a new audit client in the recording industry. HipStar is an emerging growth company that finds new recording artists, records their music, and distributes the music directly to consumers exclusively over the Internet. The company does not produce CDs or tapes and does not distribute the artist's music through traditional distribution channels. In order to better understand HipStar, you have set out to understand the following:

Industry conditions

The regulatory environment

Other external factors affecting the business

The entity's business operations

The entity's investing activities and financing activities

The entity's financial reporting activities

The entity's objectives, strategies, and related business risks

How the entity measures and reviews its financial performance.

Required

For each of these eight categories (1) describe the knowledge and understanding you want to obtain about HipStar to develop a knowledgeable perspective about the entity and (2) identify how this knowledge might assist in assessing the risk of material misstatement. Use the following format:

Key Categories

Describe the knowledge used to develop a knowledgeable perspective about HipStar

Identify how this knowledge might assist in assessing the risk of material misstatement

Industry conditions

Regulatory environment

Other external factors affecting the business

The client's business operations

The client's investing activities and financing activities

The client's financial reporting activities

The client's objectives, strategies, and related business risks

How the client measures and reviews the entity's financial performance