Millwight, CPA, is considering various risks in planning theaudit of Arro Financial, a securities firm that has recentlyexperienced difficulty due to the global financial crisis. Selectfrom the option list provided whether each factor would most likelyincrease inherent risk, decrease inherent risk, increase controlrisk, decrease control risk, or have no effect on risk. Each choicemay be used once, more than once, or not at all.
1. Arro replaced member of theaudit committee with an outside board member with significantlymore financial experience.
2. The internal auditor for Arroreports directly to the CFO
3. Arro was able to increasecoverage of their liability insurance by changing the insuranceprovider
4. Arro has been operating at aloss, but the turnaround in the economy will result in a profitableyear
5. Arro has settled a significantlawsuit with a customer that had been ongoing for severalyears.
6. Arro is in the process ofinstalling a new computer software system that will not be fullyoperational until the following year. Some of the financialprocesses have been transferred to the new system, but others havenot
7. Arro has recently engaged inhedging activities by the purchase of derivatives
8. Arro has adopted a new code ofethical conduct that each employee must read and agree to abideby
9. Arro's board of directorschanged its meeting location from Arro's bank to Arro'sfacility
10. Arro has received a letter from a federal agency responsiblefor oversight requesting records of transactions for severalsignificant customer accounts
