The following factors decrease risk assessment: * Have audited Apex for three years: this factor decreases risk because with a continuing client the auditors possess extensive knowledge about the entity and its environment. The extent of effort that goes into evaluating a new client is much greater. * No stock options datebacked: this factor decreases risk because options backdating is a way of rewarding managers when stock prices fall and giving the management more money than is authorized. No stock options datebacked means the management didn’t repricing options and the risk of material misstatement due to fraud is reduced.
The following factors increase risk assessment: * Nature of Apex’s industry: this factor increases risk because the industry Apex operates is highly dependent on electronic technology. This may result in inventory being obsolete and overvaluation. * New automatic navigation system: this factor increases risk because new product will increase business risk although this new product is selling well in the short-term. * Apex trying to get more analysts to follow: this factor increases risk because excessive pressure exists for management to meet the profitability or trend level expectations of analysts and this will increase risk relating to management’s incentives to report fraudulently. * Pressure of meeting estimated earnings and raising stock price: this factor increases risk because Apex is a public company and thus its stock price is adversely affected if it fails to meet its earnings expectations. The CEO may be too optimistic and has very high expectations of earnings per share and stock price (make EPS $2.30-$2.35 in 2013 and $3.20 in 2014; increase stock price at least 30% in 2014). This excessive interest by management in increasing the entity’s stock price and earning trend increases risk relating to