Reference no: EM133000620

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

Required - Based on the information provided:

(a) Discuss the overall impact on audit risk. Which specific component(s) of audit risk would be affected?

(b) In refer to Question No. 5, for each matter explains from 1 to 3, outline how each matter considers as fraud audit risk factors in relation to Colette Hayman Ltd (CHL)'s case study.