Audit Risk and Sampling: Cloud 9

Audit Risk & Sampling
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Audit Risk & Sampling
Consider and explain the effects of opening Cloud 9's first retail store on its accounts.
The opening of Cloud 9's first retail store will have several effects on its accounts. First, it will increase the company's revenue, as customers will now be able to purchase products directly from the store. This will also increase the company's expenses, as it will now have to pay for the costs of running the store, such as rent, utilities, and employees. Finally, it will likely increase the company's inventory, as it will need to stock the store with products.
Describe how this business change would affect the components of audit risk.
This business change would affect the components of audit risk in the following ways:
1. Inherent risk: The inherent risk of the company's financial statements would likely increase as the addition of a retail store could make the statements more complex (Nikolovski et al., 2016).
2. Control risk: The control risk of the company's financial statements would likely increase, as the addition of a retail store could create new opportunities for errors and fraud (Nikolovski et al., 2016).
3. Detection risk: The detection risk of the company's financial statements would likely increase, as the addition of a retail store could make it more difficult to detect errors and fraud (Nikolovski et al., 2016).
The changes that would be expected to see in inventory transactions and balances as Cloud 9 changes from a wholesale-only business to a retail and wholesale business are as follows:
The main change that would occur in inventory transactions and balances is that the company would need to purchase inventory for the store. This would likely increase the company's inventory levels, as we...