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Mickey Industries is a privately-owned business that sells medical product and devices to hospitals, clinics and the public. Certain changes have occurred in Mickey Industries
Mickey Industries is a privately-owned business that sells medical product and devices to hospitals, clinics and the public. Certain changes have occurred in Mickey Industries during the year undergoing the audit. Harvey, CPA, the continuing auditor, needs to evaluate the effect these changes have on audit risk. For each of the following "Client Changes" that have occurred during the year under audit identify the appropriate audit response from the list of "Possible Effect on the Audit." Each response can be used once, more than once, or not at all. Write a short explanation of why you chose that effect. You may include the audit risk formula in your answer, but it cannot be the whole answer. Client Changes 1. An internal audit department has been established. 2. A new inventory control system has been installed that reduces the access of unauthorized parties. 3. Inexperienced accounting personnel were hired in the accounting department. 4. Excess cash was used to purchase complex derivatives. 5. Controls over the sales credit approval process have laxed. 6. New government regulations now apply to Mickey Industries. 7. Management has become overly aggressive in reaching target goals. 8. An expert was hired to help determine the value of the ore content in ending materials inventory. Possible Effect on the Audit A. Increases the planned level of detection risk (e.g., changes from 5% to 10%) B. Decreases the planned level of detection risk (e.g., changes from 10% to 5%) C. Change has no effect on the planned level of detection risk
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