It is nоw 20X2, аnd yоu аre аn auditоr at Williams & Company, a CPA firm. The audit partner, Mr. Williams, has asked you to handle a potential new audit engagement. Background Sell Well Company Limited is a private company that imports foodstuffs from Southeast Asia and Europe and distributes them to supermarket chains, discount stores, and corner stores. The company was founded by Mr. Chandler 30 years ago and has experienced steady growth. The Business Transaction Mr. Williams, the senior audit partner, is a close friend of Mr. Chandler and has been advising him on his personal retirement plan. He also prepared a three-year business plan, including profit forecasts and cash flow projections, based on information provided by Mr. Chandler. Using this information, Mr. Williams introduced one of Williams & Company’s audit clients, Great Profit Holdings Limited, to Mr. Chandler. After negotiations, Great Profit Holdings acquired 100% of Sell Well Company Limited for $60 million, based on a prospective price/earnings ratio of 2× the company’s 20X2 profit forecast (forecasted at no less than $30 million). Williams & Company reviewed this profit forecast as part of the transaction. The final purchase price will be determined based on the audited financial statements for the year ending December 31, 20X1, which will be audited by Williams & Company. Under the agreement: If the audited net profit is below the forecasted net profit, Mr. Chandler must reimburse Great Profit Holdings twice the shortfall. Mr. Chandler will remain CEO of Sell Well Company Limited, earning a $90,000 monthly salary until the completion of the company’s 20X1 audit. Audit Arrangements You recently met with Miss Li, the newly appointed Financial Controller of Sell Well Company Limited. She was hired one month ago to replace the previous accountant, who retired after 20 years of service. Miss Li’s primary focus is overseeing the conversion of the company’s accounting system to a newly acquired state-of-the-art system. Due to her workload, the responsibility for preparing the annual financial statements for audit will be delegated to the accounting supervisor. Required: 1. Identify and briefly describe at least two auditor independence issues related to this audit engagement for Sell Well Company Limited. For each issue, clearly explain why it threatens auditor independence and briefly discuss the potential consequences for both the auditor and financial reporting if the issue is not addressed. (10 points) 2. Identify and briefly explain at least two factors that increase the risk of material misstatement in the unaudited financial statements. For each factor, make sure your description clearly indicates why this factor creates a higher risk. (5 points)