Tucker Engineering, Inc. ("Tucker"), designs, manufactures and sells industrial pumps and

related plumbing equipment. You are the audit senior manager assigned to Tucker's audit for the

year ending December 31, 2019. During September 2019, as a part of your risk assessment

procedures, you identified the following information related to Tucker's business.

1. In response to competition, Tucker took action to modernize certain of its products. In January

2019, Tucker obtained a long-term loan from a bank to complete development and introduction

of a new product, a complex computerized control mechanism that can be added on to certain of

its other products. It eliminates the need for Tucker's customers to manually monitor and adjust

certain settings. The product can be purchased together with its other products or purchased

separately and added to its other products that have already been installed by its customers. First

shipments of the new product occurred on September 1. Early interest by customers indicates

that the new product is likely to be successful, but more experience will be needed to be certain.

2. Because of the nature of the new product, the sales price includes mechanical maintenance and

software updates for three years from the date of purchase. Tucker's other products do not

involve software and include only a 90-day warranty.

3. The company is required to provide to the bank a compliance certificate related to its new loan

no later than 45 days after each quarter-end to show whether the company is in compliance with

its loan covenants at the quarter-end. The audit senior prepared the following schedule:

Actual (2019 is unaudited)

Covenant Requirement December 2018 March 2019 June 2019

Current ratio: at least 1.50 to 1 1.74 to 1 1.61 to 1 1.52 to 1

Minimum equity: $450 million $487 million $486 million $454 million

4. At the end of June 2019, Tucker recorded a loss to adjust the value of certain of its older

inventory and to recognize the impairment in the recorded value of its older manufacturing

equipment.

5. Summary financial information is attached.

Evaluate the information presented, above, and the summary financial information. Identify new

or changes in risks of misstatement that should be considered in the audit of Tucker's financial

statements for the year ending December 31, 2019. For each of the risks you identified:

1. Describe the risk, using the relevant facts to explain why it is a risk or why the risk has

changed from the prior year

2.Identify the likely financial statement accounts and assertions affected by the risks

3.Consider whether there are any financial statement-level risks and possible auditing or

audit reporting consequences

4.Describe how the audit procedures and the need for audit evidence would be affected as

compared to the 2018 audit (i.e., how do you plan to respond to the identified risks?)