Required

Task 1.1

Josh Thomas, Audit Senior, has asked you to research the retail and wholesale footwear industries and report back to the audit team. Your report will form part of the overall understanding of Cloud 9's structure and its environment.

You should concentrate your research on providing findings from those areas that have a financial reporting impact and are considered probable given Cloud 9's operations. In conducting your research, you should consider the following key market forces, as they relate to Cloud 9's operations.

General and Industry-specific economic trends and conditions

a. What is the current condition of the economy?

b. Is the business affected by developments in other countries, foreign currency fluctuations or other global forces?

c. If the industry is labour intensive, are there unusual or unique labour relations issues?

d. How does the company's growth and overall financial performance compare with the industry, and what are the reasons for any significant differences?

e. What is the volume and type of transactions in the business?

f. Are the client's operations centralised or decentralised?

g. Is the client's business cyclical in nature or influenced by seasonal fluctuations in the market?

h. What is the susceptibility to fraud/theft? (Is the product something that can easily be stolen and has a sale market?)

Competitive environment

a. What products does the client sell, and have there been significant changes with respect to:

- Major products or brands?

- Selling strategies?

- Sales/gross margin by product?

j. Who are the client's major competitors, and what share of the market does each hold?

k. Is there significant differentiation between the client's and competitors' merchandise?

l. What is the effect on the client of potential new entrants into the market? Are there any significant barriers to entering the market?

Product information

m. Is there a specific lifecycle for the product?

n. Is the product dependent on trends or styles?

Customer information

o. Are there specific customers on whom the client is highly dependent?

p. What is the overall profile of the client's customers? Have there been significant fluctuations in the client's customer base?

Supplier information

q. Who are the key suppliers?

r. Are the materials subject to significant price movements or influenced by external market forces?

Technological advances and the effect of the internet

s. How does the industry use technology?

t. What technological trends are impacting the industry?

Laws and regulatory requirements.

u. Are the client's operations affected significantly by local or foreign legislation?

What new laws and regulations recently enacted (or pending) may have significant effects on the company?

December 31, 2019

STATEMENT OF INCOME

For the year ended December 31, 2019

20192018

Revenue 51,057,288 48,171,417

Cost of goods sold 24,590,09124,567,422

Gross profit 26,467,19723,603,995

Other expenses 24,416,968 21,810,612

Income from operations2,050,2291,793,383

Other income 468,671 404,234

Income before taxes 2,518,9002,197,617

Income tax expense 567,111 678,096

Net income 1,951,789 1,519,521

STATEMENT OF FINANCIAL POSITION

December 31, 20192019-2018

ASSETS Current Assets Cash 1,819,142 588,431

A/R -------------12,665,924 -----10,569,617

Inventory 7,395,890 7,816,539

Prepaids 799,265 1,362,500

Total Current Asset-22,680,22120,337,087

Due from parent578,767578,767

Plant and equipment1,023,558 888,039

Total Assets 24,282,546-21,803,893

LIABILITIES AND SHAREHOLDERS EQUITY Current Liabilities

Accounts payable-1,458,2635,224,982

Accrued liabilities 3,373,3961,533,650

Total Current Liabilitie- 4,831,6596,758,632

Long-term debt11,472,2699,072,298

Deferred taxes 204,340 150,474

Total Liabilities 16,508,26815,981,404

Equity

Share capital6,265,232-6,265,232

Retained earning deficit-1,509,046 --(442,743)

total24,282,546 - 21,803,893

Cloud 9 Ltd. December 31, 2020 Identification of significant risks

Potential risk description	Account(s)	Assertion(s) (assignment 3)	Level of inherent risk (assignment 3