You are the audit senior responsible for the audit of ABC Limited. You are currently planning the audit for the year ended 30 June 2018. During your initial planning meeting held with the financial controller, he told you of the following changes in the companys operations and its business environment.

1. ABC Limited has been experiencing declining sales over the last 2 years. Cost cutting has proved difficult due to the high level of imported materials used in ABCs operations and consequently margins have been falling. Bankers are presently happy to continue providing ABC with loan facilities; however, they do expect to see significantly improved results in the next financial report since the companys debt to equity ratio is close to breaching the debt covenant.
2. The governments recent tariff reduction policy has placed ABC in direct competition with cheaper products manufactured overseas and imported to Australia.
3. ABC introduced a bonus scheme for its sales staff with the intention of increasing the sales volume. The bonuses will be an increasing percentage of the gross sales made by each salesperson above certain monthly targets. The sales targets seem to be very optimistic and if the salespeople achieve the targets, the bonus will become a significant component of their salary.
4. Further to address the sales issue, ABCs management decided to start a new line of business with the company having no previous experience in this industry. This new product is small in size, but very valuable, and therefore can be facilitated in the operation within the existing warehouse space.
5. The company adopted a new general ledger software package. The financial controller is impressed with the new system because management accounts are easily produced and allow detailed comparisons with budgets and prior-period figures across product lines and geographical areas. The conversion to the new system occurred with a minimum of fuss. As it is a popular computer package, it required only minor modifications.
6. As part of the conversion, the position of systems administrator was created. This position is responsible for all systems maintenance, including data backups and modifications. Previously, these tasks were the responsibility of the accountant.

a. For each of the above six scenarios, explain how the components of audit risk (inherent, control or detection risk) are affected.

b. Identify and explain three key fraud risk factors within ABC arising from the scenarios stated above.