Company Pacific Gourmet, Inc. (Pacific Gourmet) is a retailer of fine food, wine, and related products. The company has been in operation for fifteen years and consists of three core business operations: product sales in its retail store, product sales to food and specialty stores, and food services. The company was started as a local family business and has received additional funding over the years from several private investors. Pacific Gourmet has a wholly owned subsidiary, which provides food services to corporate clients around the country. In addition, the company also holds investments in several private companies with whom it does business. On January 31, Year 1, Pacific Gourmet guaranteed a $15 million debt obligation of one of these investmentsVineyard Partnersfor a period of five years. The Company owns a 15% interest in Vineyard Partners. Marketing The company experienced significant sales growth during its history and continues to expand its product offerings and market reach. Pacific Gourmet focuses its marketing efforts on demographic groups not typically affected by fluctuations in the economy and thus continues to maintain consistent revenue growth. However, Pacific Gourmet sustained a significant decline in its gross margin on product sales due to an increase in the cost of raw materials and failure to monitor compliance with budgetary guidelines. Management Pacific Gourmet has a senior management team composed of seasoned business managersmany of whom have been with the company since inception. However, during the current year the CFO resigned to work for a competitor and recruited several key Pacific Gourmet financial professionals to join him at his new company. After several months of searching, a new CFO with a background in retail finance was hired. In addition, the accounting department is currently understaffed due to staff turnover. Further, the new CFO is redesigning the accounting policies and procedures and is replacing the general ledger software to improve the effectiveness of the companys financial reporting systems. Engagement Pacific Gourmet uses an independent audit firm for its annual audits, which must be provided to investors and lenders under the companys debt covenants. The companys management maintains a strong professional relationship with the audit engagement team. However, there was a disagreement between the auditors and the new CFO in the current year regarding the $15 million-debt guarantee. Based on the information in the Pacific Gourmets company profile, above, which factor is most likely to increase audit risk? Select only one factor.

1. The Company was started as a local family business and has received additional funding over the years from several investors.

2. The new CFO is redesigning the company's accounting policies and procedures

3. The company consists of three core business operations: product sales in its retail store, product sales to food and specialty stores, and food services.

4. The company experienced significant sales growth durign its history and continues to expand its product offerings and market reach.