Dracule Industries is a privately-owned business that sells medical product and devices to hospitals, clinics and the public. Certain changes have occurred in Dracule Industries during the year undergoing the audit. Harker needs to evaluate the effect these changes have on audit risk. Audit risk at the financial statement level is influenced by the risk of material misstatement; which include factors related to management, the industry and the entity or a combination thereof. For each of the following changes that have occurred during the year under audit identify the appropriate audit response for the list of responses. Each response can be used once, more than once or not at all.
Client changes:
1. An internal audit department has been established.
2. A new inventory control system has been installed that reduces the access of unauthorized parties.
3. Inexperienced accounting personnel were hired in the accounting department.
4. Excess cash was used to purchase complex derivatives.
5. Controls over the sales credit approval process have laxed.
6. New government regulations now apply to Dracule Industries.
7. Management has become overly aggressive in reaching target goals.
8. An expert was hired to help determine the value of the ore content in ending materials inventory. | Possible effect on the audit:
a. increases the acceptable level of detection risk
b. decreases the acceptable level of detection risk
c. change has no effect on the acceptable level of detection risk
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