Reference no: EM132837858

You are the new auditor for Beauty Blend Cosmetics Co (BBCC) for its December 31, 2020 year end. The business distributes its products to beauty stores in Canada and the US, and it is looking to expand into Europe over the next couple of years by negotiating contracts with high end department stores in England and France.

• When performing your client acceptance procedures, you did not note any issues with Client integrity, but you did note that some of the cosmetic products sold by BBCC may include toxic chemicals. BBCC insists its products are safe and they meet the extensive government regulations. However, given the trend towards clean beauty, the company is looking to revamp its products to be "clean." To develop clean products, during the past year, BBCC invested $500,000 in the development of new product formulas. It also offered rebates and extended credit terms to its customers to encourage sales.
• The CFO was recently hired and he plans to strengthen the internal controls. He hired a new controller and asked him to focus on collecting the accounts receivable, so the CFO has decided that for 2020 an allowance for doubtful accounts is not needed. He also needs to hire additional accounting staff because the current staff are having issues keeping up with the current workload. The CFO really wants to grow the business and its sales and so during 2020, a new bonus plan was implemented based on sales growth and profitability.

Problem 1: Identify and explain 5 factors that impact the risk of material misstatement.