SQ4.4 Boris Johnson is the partner in charge of the audit of JB Enterprises (or JBE). He is trying to assess inherent risk for the audit so as to develop an appropriate audit plan. The following independent situations, listed below, have come to his attention. For each independent situation:

(i) Indicate whether inherent risk would increase or decrease, and why.

(ii) Identify the specific financial statement account(s) likely to be affected.

(iii) Indicate whether the audit materiality threshold should increase or decrease.

Independent situation	Inherent risk (incr. or decr.) and why	Specific account(s) affected	Materiality threshold (incr. or decr.)
(a) Most of JBs profit comes from the sale of a smart watch that it manufactures. Although it has a high selling price it is of such good quality that it has dominated the market for many years. A competitor has recently announced that they have developed a new smartwatch that has more features and will sell for half the price that JB charges.
b) One of JBEs gift shop businesses has performed extraordinarily well, increasing its sales by 50% since the appointment of a new sales manager. It seems that the performance compensation system that pays bonuses based on sales (all made on credit) is working as employee morale in that shop has been boosted
(c) JBE markets six different established products. Its sales, receipts and debt collection systems are well controlled. The terms of sales are clearly defined, with approximately 90 per cent of sales being to customers on 30-day account.
d) Your review of the companys banking records reveals that a direct debit for consulting services is withdrawn from the companys bank account on the first day of every month to an entity known only as BJW Pty Ltd. The sole shareholder of BJW appears to be a trust located in an offshore tax haven.