Background Information:


Company A is a large domestic APP development enterprise, after more than ten years of research and development activities, it successfully developed many popular APP. Company A's revenues are generated from Internet business, mainly including 1) membership service fees from its own APP 2) the sale of advertising space and the traffic on its own APP to famous advertising platforms and charge online advertising service fees.


Company A hired accounting firm B to conduct the IPO audit. During the financial statement audit, the auditor of Company A found the following matters (all the following matters are transaction with the amount over the materiality level):
1)	Company A’s total assets were nearly RMB 5 billion, of which 40% were long-term investments (involving various kinds of accounting treatments such as equity method, cost method and available-for-sale debt method), and another 37% were cash and cash equivalents, time deposits and wealth management products in commercial banks (Company A owns many bank accounts, including many oversea accounts).
2)	Company A had many related party transactions, and the year-end balances of due from related parties as well as due to related parties were significant. In the audited period, Company A has purchased a RMB 100 million convertible bond issued by one of its related parties, which was included in the related party transactions and balances.
3)	Company A's revenue decreased significantly in 2022, the reasons given by management were as follow a) It terminated the cooperation with a major advertising platform; b) Since mid-2021, Ministry of Industry and Information Technology of the PRC issued a series of strict control policies on advertising pop-ups on APPs etc., leading to the sharp decrease of Company A’s online advertising business in the PRC.
4)	For the Company A's online advertising business, according to the contract term with customers, the settlements should be based on the traffic data recorded by each advertising platform and each advertising platform should make payment regularly, but Company A itself does not have its own system to record the traffic data.
5)	The gross profit ratio of Company A was high (around 67%), but the Company suffered net operating loss for several years.
6)	During the audit, the auditor found that the quality of the information provided by the Company was poor with long turnaround time.


The auditor obtained financial statements from Company A at the beginning of the audit (please refer to the Appendix attached). Based on the management interview results and understanding of the financial statements, the auditor performed risk assessment, designed the corresponding key audit procedures, and summarized the key audit evidence need to be obtained.
 
Questions：
As the auditor of the Company A, please discuss and analyze the following questions based on the above information (please answer in English):
1.	What are the significant risks at the overall financial statement level and assertion level of each account?
2.	What are the top missions that may affect the audit schedule and the timely delivery of audit report?
3.	How to arrange the staff and time schedule to address the significant risks and top missions identified above?
4.	What are the key audit procedures and audit evidence for each of the above identified significant risks?
5.	In response to above item 6), what do you think should be done to ensure the smooth progress of the audit?
 
Appendix:



BALANCE SHEETS	As of
	2022/12/31	2021/12/31
	RMB('000)	RMB('000)
ASSETS		
Current assets:		
Cash and cash equivalents	1,500,000	1,300,000
Restricted cash	800	800
Short-term investments	260,000	360,000
Accounts receivable	170,000	225,000
Prepayments and other current assets	479,000	835,000
Due from related parties	101,000	224,000
Total current assets	2,510,800	2,944,800
		
Non-current assets:		
Property and equipment, net	101,000	102,000
Right-of-use assets, net	45,000	17,000
Intangible assets, net	10,000	12,000
Long-term investments	1,994,000	2,409,000
Due from related parties	111,000	3,000
Deferred tax assets	14,000	15,000
Other non-current assets	102,000	105,000
Total non-current assets	2,377,000	2,663,000
Total assets	4,887,800	5,607,800
 
LIABILITIES AND SHAREHOLDERS' EQUITY		
Current liabilities:		
Accounts payable	134,000	105,000
Accrued expenses and other current liabilities	1,137,000	1,390,000
Due to related parties	37,000	48,000
Income tax payable	43,000	27,000
Total current liabilities	1,351,000	1,570,000
		
Non-current liabilities:		
Deferred tax liabilities	58,000	60,000
Other non-current liabilities	205,000	192,000
Total non-current liabilities	263,000	252,000
Total liabilities	1,614,000	1,822,000
		
Shareholders' equity:		
Ordinary shares	235	234
Additional paid-in capital	2,768,480	2,928,378
Retained earnings	505,085	857,188
Total equity	3,273,800	3,785,800
Total liabilities and equity	4,887,800	5,607,800






 
INCOME (LOSS)	2022/12/31	2021/12/31
	RMB('000)	RMB('000)
Internet business	784,232	1,552,645
Revenues	784,232	1,552,645
		
Cost of revenues	-257,656	-475,378
Gross profit	526,576	1,077,267
		
Operating income and expenses:		
Research and development	-211,000	-455,000
Selling and marketing	-370,000	-766,000
General and administrative	-191,000	-380,000
Other operating income	17,000	-5,000
Total operating income and expenses	-755,000	-1,606,000
Operating loss	-228,424	-528,733
		
Other income/(expenses):		
Interest income, net	25,000	35,000
Foreign exchange gain/(loss)	24,000	39,000
Other income, net	-159,679	964,314
Income before taxes	-339,103	509,581
Income tax expenses	-13,000	-97,000
Net income/(loss)	-352,103	412,581