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1)Harden and Associates, LLP is planning the audit for a new engagement - Coughlin Energy Resources (CER).CER is a regulated utility (power company), but is

1)Harden and Associates, LLP is planning the audit for a new engagement - Coughlin Energy Resources (CER).CER is a regulated utility (power company), but is publicly traded and therefore has the same reporting requirements as any other publicly-traded company.

CER is much more profitable than most of its competitors due to its large investment in information technology (IT).It uses IT not only in its business processes but also in its operations - to control the energy flow to and from the power grid, and ultimately to its customer base in Western Washington.CER has grown recently, and with that growth has come challenges to its operations.CER is also turning to some financial market tools to hedge its risks and potentially to speculate in the energy market.For example, CER uses a lot of oil and gas, and therefore is exposed to risks related to the global price of these resources.CER uses long-term contracts and makes bets on market price changes based on its information to lock in market prices for months at a time.

Because of the complexities from growth and its risk management activities, CER has hired several accountants who specialize in oil and gas accounting.CER's internal audit function has also begun performing more extensive compliance and operational audits as well.

Harden and Associates's audit team discussed the audit and the client with the predecessor audit, Li and Company.Li's team indicated that CER has had some trouble in previous years with its accounting for property, plant and equipment.CER has several facilities that all contribute to its energy-related operations.Some PP&E items are used seasonally or are rotated in usage, depending on the energy needs of consumers.CER has had difficulty in considering how to measure usage of the PP&E over time.

During the current year, CER acquired Nefcy Utilities, a regional electric power company, expanding the number of its facilities.

Required:(25 points) Based on the above information, on the next page, identify the factors (both positive and negative factors) impacting the risk of material misstatement that Harden's team should consider in the audit of its new client.

Indicate whether each factor will increase or decrease the risk of material misstatement, and which audit risk model component (inherent risk or control risk) is impacted by the factor.

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