You are considering an audit engagement with a new, privatelyheld entrepreneurial company (Moxy, Inc.) headed by Ryan Morris, acharming CEO. The company specializes in chemical lawn treatments.Ryan indicates that his business has really taken off, and he showsyou last year’s financial statements, which show a sales growthincrease from $1,200,000 to $4,500,000 and gross profit growth from$575,000 to $2,800,000 in just one year. He has had to finance thisgrowth with an $850,000 short-term promissory note, but would liketo go public and attract investors. He also gives you the followinglimited information from his balance sheet:

	Year 1	Year 2
Assets
Current assets:
Cash	$ 30,100	$ 88,120
Accounts receivable	—	697,500
Other	77,320	942,000
Total current assets	$107,420	$1,727,620
Liabilities
Current liabilities:
Notes payable	$    —	$ 780,500
Taxes payable	—	29,000
Other	3,240	967,000
Total current liabilities	$3,240	$1,776,500

Required:

(a) Discuss why engagement risk, professionalskepticism, and assessment of fraud risk are important in thisscenario.

(b) Calculate the current ratios for year oneand year two. What concerns do these calculations raise?

(c) Present at least three questions you wouldlike to ask Ryan about the information provided, before making yourdecision about accepting the client.