You are currently involved in planning for the audit of Curtains & Blinds Ltd (CBL), a national company producing curtains and blinds. The curtain and blind market is highly competitive, and CBL has been experiencing declining sales over the past three years. Cost cutting has proven very dicult, as the cost of materials used in the companys production lines has increased each year. CBLs bank has continued to provide CBL with loan facilities; however, it has indicated that it expects to see improved results in the next nancial report and has placed a number of quite restrictive covenants in CBLs lending agreements. Recent articles appearing in the nancial press concerning CBLs expected nancial results have been very pessimistic about its likely performance.

Based on the information provided:

(a) What specic component(s) of audit risk would be aected?

(b) Discuss the overall impact on audit risk.