The auditor is planning the audit of financial statements with December 31 2021 as the year-end. Here is what she learned so far:

The entity has been granted a new loan for the expansion of its warehouse:

renovation has been completed during the summer

bank requires the Working capital ratio[1] to have a minimum of 2.0 upon financial year-end

The sole owner of the entity plans to sell its shares within the next two years:

in this industry, businesses are usually sold at a price that corresponds to 8 times the amount of net income

Here is the last balance sheet available for the entity:

Balance sheet As at October 30
	2021			2020		Variation
Cash Accounts receivable Inventory Buildings, net Accounts payable and accrued liabilities Current portion of long-term debt Long-term debt Capital stock Retained earnings		8,000 1,270 89,340 98,610 543,000 641,610 19,900 32,000 51,900 164,000 100,000 325,710 641,610		7,400 1,250 67,400 76,050 352,000 428,050 16,000 100,000 312,050 428,050		+600 +20 +21,940 +191,000 +3,900 +32,000 +164,000 - +13,660

Required:

identify the factors that increase inherent risk in this scenario, please explain briefly

identify the impact of these factors on the risk of material misstatement:

at the financial statements level

at the assertion level (consider accounts of both the balance sheet and the income statement)

[1] Working capital ratio = Current assets/Current liabilities