This question consists of 15 items pertaining to an auditor's risk analysis of an entity. Select the best answer for each item.

Bond, CPA, is considering audit risk at the financial statement level in planning the audit of Toxic Waste Disposal (TWD) Company's financial statements for the year ended December 31, 19X3. TWD is a privately owned entity that contracts with municipal governments to remove environmental wastes. Audit risk at the financial statement level is influenced by the risk of material misstatements, which may be indicated by a combination of factors related to management, the industry, and the entity.

Required:

Based only on the information below, indicate whether each of the following factors would most likely increase audit risk, decrease audit risk, or have no effect on audit risk. Give reasons why. Company Profile:

a. This was the first year TWD operated at a profit since \(19 \mathrm{~W} 9\) because the municipalities received increased federal and state funding for environmental purposes.

b. TWD's Board of Directors is controlled by Mead, the majority stockholder, who also acts as the chief executive officer.

c. The internal auditor reports to the controller and the controller reports to Mead.

d. The accounting department has experienced a high rate of turnover of key personnel.

e. TWD's bank has a loan officer who meets regularly with TWD's CEO and controller to monitor TWD's financial performance.

f. TWD's employees are paid biweekly.
g. Bond has audited TWD for five years.
Recent Developments:
h. During 19X3, TWD changed its method of preparing its financial statements from the cash basis to generally accepted accounting principles.
i. During 19X3 , TWD sold one half of its controlling interest in United Equipment Leasing (UEL) Co. TWD retained a significant interest in UEL.
j. During 19X3, litigation filed against TWD in 19W8 alleging that TWD discharged pollutants into state waterways was dropped by the state. Loss contingency disclosures that TWD included in prior years' financial statements are being removed for the 19X3 financial statements.
k. During December 19X3, TWD signed a contract to lease disposal equipment from an entity owned by Mead's parents. This related party transaction is not disclosed in TWD's notes to its 19X3 financial statements.
l. During December 19X3, TWD completed a barter transaction with a municipality. TWD removed waste from a municipally owned site and acquired title to another contaminated site at below market price. TWD intends to service this new site in \(19 \mathrm{X} 4\).
m. During December 19X3, TWD increased its casualty insurance coverage on several pieces of sophisticated machinery from historical cost to replacement cost.
n. Inquiries about the substantial increase in revenue TWD recorded in the fourth quarter of 19X3 disclosed a new policy. TWD guaranteed to several municipalities that it would refund the federal and state funding paid to TWD if any municipality fails federal or state site clean-up inspection in 19X4 o. An initial public offering of TWD's stock is planned for late 19X4.