Identify the areas of the audit that may meet the requirements for disclosure as a Critical Audit Matters (CAM) based on AS 3101 based on the current background of the audit client. Use the background in the case and the financial information to assist with determining those areas that may meet the requirements of the AS 3101.

Background:

F2F is a public company that provides a platform for users to connect and share information with friends across the globe. Its market capitalization is approximately $12.6 billion. F2F has grown its user base exponentially since its first year in operations and also went public two years ago. F2F has developed its own proprietary software allows for users to create friendship circles or groups that can connect and share personal updates, photographs, and other information. During the current year, F2F completed a significant business acquisition of Emoji Chat, which resulted in approximately $400 million of goodwill and intangibles. The total consideration paid for Emoji Chat was $785 million and was financed with convertible debt and equity. Furthermore, F2F was also named as the defendant for to several legal matters. In 20x0, F2F was name as the defendant in a class action suit, which alleged a violation of consumer protection laws as data was compromised during a third-party cyber-attack on F2F. During the cyber-attack, the third-party attempted to steal user profile information and other data from user accounts. The class action suit is for an unspecified amount and is in the preliminary stages. Several other legal cases are pending and relate to an employee claim of termination without cause and a patent infringement claim. F2F is still investigating these claims with the assistance of their external legal counsel. Currently, F2F operates in the Services-Computer Programming, Data Processing, Etc., or Standard Industry Classification (SIC) 7370 of the Securities and Exchange Commission (SEC). Its competitors primarily are those companies included in SIC 7370 industry classification. The industry is heavily reliant on innovation, technology, and acquiring users. Technology disruptions and loss of users could negatively impact the business of those in the industry. The primary revenue source for F2F, as well as other in the industry, is advertising revenues (approximately 90% of total revenue). Ads are displayed on the content pages of the users and contribute to a large portion of the revenue earned for those in the industry.

Exhibit 1- Summary Financial Information of F2F (in thousands) 12/31/2020 12/31/2019 Total Assets $1,977,250 $1,009,201 Total Liabilities $1,010,197 $287,000 Total Equity $967,053 $722,201 Total Revenue $1,251,978 $400,890 Total Expenses $820,505 $260,130 Net Income $431,473 $140,760 Exhibit 2- Summary of Critical Accounting Policies and Estimates Critical Account Policy Description Revenue Recognition The advertising revenue is generated from the display of advertisements on F2F through contractual agreements that are either based on the number of advertisement impressions (or images) delivered or contractual agreements based on a fixed fee basis over a period of time. Revenue related to agreements based on the number of images delivered is recognized when the advertisement is displayed. Revenue related to fixed fee arrangements is recognized ratably over the service period, typically 30 to 90 days. Impressions are considered delivered when visible to the user. Loss Contingencies F2F is involved in legal proceedings, claims, and regulatory, tax or government inquiries and investigations that arise in the ordinary course of business. Certain matters may be speculative for amounts that are unable to be determined. A liability is recorded when a loss is probable and the amount can be reasonably determined, which requires significant judgment. Estimates are reviewed on an on-going basis to reflect the impact of any negotiations, settlements, rulings, legal advice, or other actions that may impact the provisions made. Income Taxes- Uncertain Tax Positions F2F recognizes tax benefit for uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. In addition, F2F records a reserve for any uncertain tax positions (including interest and penalties) even though the final outcome may differ than our estimate. Business Combinations F2F allocates the fair value of the purchase consideration to the tangible assets acquired, the liabilities assumed, and to the intangible assets acquired. Th acquired assets and assumed liabilities are estimated at their fair value on the date of acquisition. The excess of the fair value of the purchase consideration and the identified assets/liabilities is recorded as goodwill. Management makes significant estimates to determine the fair value of the identified assets/liabilities. In estimating the fair value of identified intangible assets, an estimate of the future cash flows from acquired users, technology, and trade name, useful lives, and discount rates is made and based on assumptions that management deems reasonable. These assumptions are estimates and actual results may differ. Within the measurement period (not to exceed one year), adjustments may be made to the estimates made by management with an offset to goodwill. If an adjustment is required subsequent to the measurement period, then the adjustment will be reflected in earnings. Valuation of Goodwill and Acquired Intangibles Goodwill is assessed for impairment annually or more frequently if events or circumstances arise that would more likely than not reduce the fair value of the reporting unit below its carrying value. Acquired intangibles are assessed for impairment when events or circumstances that indicate the carrying value of the assets are not recoverable. The undiscounted cash flows that the asset is expected to generate are compared to the carrying value of the asset to determine recoverability. If the asset is not recoverable, it is reduced to its fair value