Fashionista Inc. was incorporated this year (2022) and started operating in March. The company operates a boutique storefront that sells unique occasion outfits to men and women. The business is owned and managed by Jessica Whittle. The business has seen exceptional success in its first year of operations and is regularly selling out of popular event attire. As a result of their popularity and quick revenue growth, Jessica has had to stockpile more inventory to prevent stockouts. This has lead to the company having cashflow issues as more working capital is tied up in inventory. The local bank has agreed to provide the company with short-term financing to fund inventory purchases, but Jessica has also approached Sam Steele to potentially purchase a 25% interest in the company. The bank and Sam have requested that Jessica provide them with audited financial statements, which would be something new for the company. The company does not have an accredited bookkeeper on staff and Jessica normally will record the transactions when she has time. If Jessica cannot obtain a clean audit report, the company would be in dire straights due to the stockpile over inventory and lack of cash flow, potentially resulting in a liquidation of the company. Required: Discuss the factors that will increase the inherent risk of Fashionista Inc. and why that factor will increase risk. Please use bullet points for each risk & ONLY the first 5 points will be read/marked. 1 A B I Inherent Risk + why it increases risk (5 max!). 8. = S 5 M U = Fashionista Inc. was incorporated this year (2022) and started operating in March. The company operates a boutique storefront that sells unique occasion outfits to men and women. The business is owned and managed by Jessica Whittle. The business has seen exceptional success in its first year of operations and is regularly selling out of popular event attire. As a result of their popularity and quick revenue growth, Jessica has had to stockpile more inventory to prevent stockouts. This has lead to the company having cashflow issues as more working capital is tied up in inventory. The local bank has agreed to provide the company with short-term financing to fund inventory purchases, but Jessica has also approached Sam Steele to potentially purchase a 25% interest in the company. The bank and Sam have requested that Jessica provide them with audited financial statements, which would be something new for the company. The company does not have an accredited bookkeeper on staff and Jessica normally will record the transactions when she has time. If Jessica cannot obtain a clean audit report, the company would be in dire straights due to the stockpile over inventory and lack of cash flow, potentially resulting in a liquidation of the company. Required: Discuss the factors that will increase the inherent risk of Fashionista Inc. and why that factor will increase risk. Please use bullet points for each risk & ONLY the first 5 points will be read/marked. 1 A B I Inherent Risk + why it increases risk (5 max!). 8. = S 5 M U =
