Suzie and lan are continuing their work on the substantive audit testing program for the Cloud 9 audit. Suzie has convinced lan that analytical procedures are not the only substantive procedures they will need. They will need to consider how audit risk and other fac?tors impact the appropriateness of analytical procedures for each area of the audit, and include other substantive procedures where required. Today, they are focusing on asset accounts. Significant accounts on Cloud 9's trial balance that they have not yet addressed include cash and inventory. Suzie asks lan to suggest what key factors they will consider when designing the substantive procedure program for each of these accounts, as well as which procedures they will choose to include in the program. Suzie reminds lan they have conducted extensive testing of Cloud 9's controls over cash receipts and payments, and many of these procedures were dual-purpose. This means that the substantive and control tests were done at the same time. While examining the documents, lan completed tasks designed to detect control deviations and substantive errors. These procedures included reperformance of the bank reconciliations and vouching recorded cash payments and receipts (including transaction approvals and posting) to the underlying documents. The testing already completed shows that controls over cash are reasonably strong, and they can justify requesting a bank confirmation for an interim date, with a roll-forward to year-end. The bank confirmation will gather evidence about the existence and valuation and allocation assertions, plus rights and obligations (that is, it will reveal liens or claims over bank accounts). The roll-forward will include testing the cutoff of cash receipts and payments. Suzie and lan spend a considerable amount of time discussing the substantive procedures they will include in the audit program for Cloud 9's inventory. Cloud 9's core business is importing and wholesaling inventory; in addition, it has now established a retail store. The importance of inventory to the business's success means that Cloud 9's senior managers are very aware of the issues surrounding good inventory systems and handling procedures. The audit team has already recognized the importance of these systems by focusing much attention on the controls relating to inventory. However, Suzie and lan have some concerns about their ability to gather sufficient, appropriate evidence about Cloud 9's inventory management system, and they know that if inventory is misstated in the financial statements, it is unlikely that the financial statements are presented fairly in all material respects. Suzie and lan decide that they will gather substantive evidence from the inventory counts at Cloud 9 to add to the evidence gathered from analytical procedures and vouching of inventory transactions. Suzie also decides to take charge of writing the program for gathering evidence on the contracts surrounding the inventory transactions between Cloud 9 and the overseas manufacturers. She wants to be sure that the accounts appropriately reflect the terms of these contracts with respect to transfer of inventory ownership. She asks lan to take charge of reviewing Cloud 9's procedures for identifying damaged, slow-moving, excess, out-of-style, and obsolete inventory. Answer the following questions based on the information for Cloud 9 presented in the appendix to this text and the current and earlier chapters. You should also consider your answers to the case study questions in earlier chapters. Consider and explain the effects of the opening of Cloud 9's first retail store on its accounts. Describe how this business change would affect the components of audit risk. What changes would you expect to see in inventory transactions and balances as Cloud 9 changes from a wholesale only business to a retail and wholesale business? Be pecific in your answer. Which inventory balance and transaction assertions would be most affected? Explain. Describe the population(s) and suggest a sampling approach for substantive procedures for inventory