Audit Risk Components and the Recommended Sampling Approach

Audit Risk and Sampling
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1 Effects on the Account Due to The Opening of the First Retail Store
Firms continually open stores to enhance their performance. However, there are certain effects of opening stores on a firm. This section elucidates the effect that a new store opening has on a firms' account performance. In the paper, we explain how a new firm opening affects its account with respect to advertising intensity, market shares, size, and age.
Advertising Intensity
To start with, due to the expenditures of rent, purchasing new products, licenses, permits, and employees, the financial accounts usually shrink. Though it consumes funds in the form of advertising fees, advertising a new retail store enhances a businesses' implementation of a differentiation strategy that helps build price premiums and brand equity. Perceptions of brand quality in brand awareness resulting from advertising usually result in spillover effects on the brand image (J.S, 2013).
A company or product with a high intensity of advertising uses a differentiation strategy that allows it to earn high premium prices and high brand equity during firm openings. Hence, when a firm with a high advertising intensity is opened, the stock market may render the firm's brand image to be diluted by the other many stores and affect its capability to negatively command high prices across the many stores around the vicinity. However, many firms often maintain their premium image by minimizing brick and mortar store locations. So, when firms with high advertising intensity open new branches, investors' issues with reduced brand equity may result in low level and future retail cash flows (J.S, 2013).
Age
Older companies own high investments in the in-house structure and routines of organizations that make them prone to inertia, which affects their adaptation capability to change. Old firms have a low growth rate in their operations; hence opening new stores may not bring significant revenue change while new firms thrive based on improved productivity and profits. Adding this idea to chain retailers suggest that older firms are likely to be affected by new changes like the launches and management of new stores. Moreover, the older the firm, the more probability it has reached its profits and revenue saturation point. Even more geographical expansion may not offer a net increase in revenue after the additional investments. Therefore, the stock market may be uncertain regarding the older chain's ability to pay rent for the newly opened chains. As a result, the company may experience a reduction in net cash flows from the newly opened stores and future market uncertainty that may decrease the firm's value (Stephen, 2013).
Size
Large companies own high investments in the in-house structure and routines o...