Your client is a technology company that produces electronic fitness gadgets. They sell all of the products directly to customers on line. For each of the factors, identify the potential risk of material financial statement misstatement, the type of risk (financial statement (FS), assertion level risk (ALR) and/or fraud risk) and the specific accounts that could be impacted. Why a RMM? (What could go wrong? Potential F/S Misstatement Potential Risk Type of Risk (FSI ALRI Fraud) Accounts & Assertions? 1 Management's bonus is based on net income 2 3 Company has capitalized a significant amount of development costs in the current year. Product is relatively unproven, in an industry with massive technological changes. Lack of segregation of duties due to there being only one accountant 4 5 Accounting policies and internal control have not previously been reviewed (first time audit) Existence of operational and financial difficulties which resulted in the closing of one of the divisions 6 7 Accounting staff lack experience in accounting 8 Complexity in inventory costing (job costing) and risk of obsolescence of raw materials (highly specialized materials) Large number of Related Party Transactions. 9 10 There are generous return policy and warrantees on all products sold