(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 anemerging growth company that finds new recording artists, recordstheir music, and distributes the music directly to consumersexclusively over the Internet. The company does not produce CDs ortapes and does not distribute the artist's music throughtraditional distribution channels. In order to better understandHipStar, you have set out to understand the following:
1. Industry conditions
2. The regulatory environment
3. Other external factors affecting the business
4. The entity's business operations
5. The entity's investing activities and financingactivities
6. The entity's financial reporting activities
7. The entity's objectives, strategies, and related businessrisks
8. How the entity measures and reviews its financialperformance.
Required
For each of these eight categories (1)describe the knowledge and understanding you want to obtain aboutHipStar to develop a knowledgeable perspective about the entity and(2) identify how this knowledge might assist in assessing the riskof material misstatement. Use the following format:
Key Categories Describe the knowledge used to develop aknowledgeable perspective about HipStar Identify how this knowledge might assist inassessing the risk of material misstatement 1. Industry conditions
2. Regulatory environment
3. Other external factors affecting the business
4. The client's business operations
5. The client's investing activities and financingactivities
6. The client's financial reporting activities
7. The client's objectives, strategies, and related businessrisks
8. How the client measures and reviews the entity's financialperformance
(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 anemerging growth company that finds new recording artists, recordstheir music, and distributes the music directly to consumersexclusively over the Internet. The company does not produce CDs ortapes and does not distribute the artist's music throughtraditional distribution channels. In order to better understandHipStar, you have set out to understand the following:
1. Industry conditions
2. The regulatory environment
3. Other external factors affecting the business
4. The entity's business operations
5. The entity's investing activities and financingactivities
6. The entity's financial reporting activities
7. The entity's objectives, strategies, and related businessrisks
8. How the entity measures and reviews its financialperformance.
Required
For each of these eight categories (1)describe the knowledge and understanding you want to obtain aboutHipStar to develop a knowledgeable perspective about the entity and(2) identify how this knowledge might assist in assessing the riskof material misstatement. Use the following format:
| Key Categories | Describe the knowledge used to develop aknowledgeable perspective about HipStar | Identify how this knowledge might assist inassessing the risk of material misstatement |
| 1. Industry conditions 2. Regulatory environment 3. Other external factors affecting the business 4. The client's business operations 5. The client's investing activities and financingactivities 6. The client's financial reporting activities 7. The client's objectives, strategies, and related businessrisks 8. How the client measures and reviews the entity's financialperformance |
