Reference no: EM132677962

Bellows Home Inspection is a private business that provides home inspection. It has been in business for 15 years and Ethan, the owner, is proud of their strong internal control system.

• The business is showing a loss for the first time in five years. The business is very cyclical: the large majority of its sales occur when a home is purchased, so it is affected by the real estate market. It gets most of its business through Bellows Realty, a real estate broker company held by Ethan and his mother. Bellows Realty will directly purchase the home inspection from Bellows Home Inspection on behalf of its clients.
• Bellows recently acquired a competitor, Home Guards Inc. To complete the purchase, it has received a significant loan from the bank. The bank will be a new user of Bellow's financial statements.
• The accounting manager, however, has indicated that it has been difficult to integrate the operations of Home Guards because its internal controls over financial reporting were pretty much non-existent at the time of the acquisition.

Required:

Problem 1: Identify four key audit issues in this company, and explain how these will affect your audit risk, using the audit risk model.