You have recently been engaged by a client to audit their financial statements. The client is a manufacturer of special made to order high end watches. The audit is a requirement of the lending institution that has extended a substantial line of credit to this small privately held company. As you scan the prior year’s balance sheet and income statement you notice that the company has a very material balance in their Accounts Receivable, Inventory and Equipment accounts. Also, with the added funding it appears that the company has managed to increase their gross revenue by over 100% as compared to last year. Based upon your interview with the Controller you realize that not only are there only a few employees but most of them are related to the President/majority stockholder.

A) Describe some of your concerns regarding the audit and how it effects your risk assessment.

B) Choose either the revenue cycle or one of the accounts named above and create an audit program focusing on at least 3 major assertions common to that area. Clearly identify what documents and tests you plan to use to determine if the financial statements have been presented fairly?