You are an audit field senior at Bailey & Associates and have noted the following independent issues in relation to the audit of Sleek Ltd:

• The accounting system at Sleek Ltd did not operate effectively during the first year of operations. Consequently, some general ledger accounts had to be based on estimates, as the actual data relating to these balances had been lost.
• Due to increased competitive pressures, Sleek Ltd has recently moved the manufacture of some of its clothing lines out of Melbourne into regional areas. While Sleek Ltd saves around 20% in costs, the manufacturing process takes longer and on several occasions late delivery has resulted in lost sales.

Required:

Explain the impact of each of these separate issues on your assessment of audit risk, the materiality level and the audit strategy that would be adopted.