Answer bank is:

• Decreases control risk
• Decreases detection risk
• Decreases inherent risk
• Increases control risk
• Increases detection risk
• Increases inherent risk
• No effect in audit risk

Bestwood Furniture, Inc., a nonissuer that produces wood furniture, is undergoing a Year 2 audit. The situations in the table below describe changes Bestwood made during Year 2 that may or may not contribute to audit risk. For each situation, select from the option list provided the effect, if any, that the situation has on a specific element of audit risk for the Year 2 audit. A choice may be used once, more than once, or not at all. Situation Effect on component of audit risk 1. During Year 2, the company instituted a new procedure whereby the internal audit function distributes payroll checks to employees for selected payroll cycles. 2. In Year 2, the auditor noted that the company's newly hired purchasing agent was not obtaining competitive bids for all major purchase requisitions. 3. Early in Year 2, the company extended its existing warranty program on some of its major products in an effort to increase revenue. 4. At the beginning of Year 2, the company changed insurance carriers for the fire insurance on its building. 5. During Year 2, the company repaid a floating- interest-rate loan on which it had purchased a derivative as a hedge. The hedge was also sold. B E