The audit staff have recently completed risk assessment procedures to gain an understanding of Chocolate from Heaven Inc.s (CFHI) business and to identify risk factors relevant to the risk of material misstatement. (For further background on the company, refer to Question 6-44 on page 206.)

For each risk factor below, decide whether each piece of information would fit into your assessment of inherent risk (IR) or control risk (CR), and whether it would increase or decrease the specified risk area.

1 Due to the size of the CFHIs business, only one accounting clerk does most of the accounting. IR IR CR CR

2 In recent years there has been increased competition in the artisanal small batch chocolate business. IR IR CR CR

3 The management bonuses at CFHI are based on net income IR IR CR CR

4 All cheques require the signature of both owners. IR IR CR CR

5 Access to the warehouse at CFHI is restricted to warehouse employees only, who carry their own security cards. IR IR CR CR

6 The chocolate inventory has a one-year shelf life. IR IR CR CR

7 David Chan has developed a personal trusted relationship with each of the cocoa bean farmers in Tanzania, Ecuador, Philippines, and Honduras. He visits each farmer annually. He believes these strong relationships help to ensure farmers send CFHI high-quality beans. High-quality beans are critical to the production of high-quality chocolate. IR IR CR CR

8 CFHI just switched to an inventory tracking system that was developed by the owners son as part of a computer programming course. The project received an A grade. IR IR CR CR

9 CFHI customers include major retailers such as Target, Marshalls, and high-end grocery stores. One month before Christmas, a major selling timerepresenting approximately 30 percent of salesCFHIs custom-made cocoa butter press broke down. It took two weeks to obtain the necessary part to repair the machine. Orders were shipped to major retailers more than two weeks late and several are refusing to pay for the order, claiming that the delayed delivery resulted in a significant quantity of unsold chocolate. IR IR CR CR