J's has been in the paper manufacturing business for the last 20 years. It manufactures and distributes paper throughout the Singaporean continent. During the last six years, J's opened 5 new factories in 4 different locations, financed mainly from bank loans. Due to rapid growth in the company, the financial director James is keen to set up an internal audit department. Currently the project appears to have stalled, as some of the senior executives do not foresee the benefit of setting up such a department and are unwilling to commit any additional fund or resources on this plan. The senior executives argue that they are competent enough to monitor the internal controls of J's.

Required:

Prepare a memorandum to the audit manager, outlining your risk assessments relating to J's. When making your risk assessments:

(a) Identify and discuss the risks that may arise from each of the above company. In your explanation, please mention the components of the audit risk model affected.