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Each of the issues presented below is independent and material to the financial statements. Select from the option list provided the effect of each issue below on the auditor's risk of material misstatement. A choice may be used once, more than once, or not at all. Issue Effect 1. The client has negotiated several asset purchases from a major shareholder. 2. The client has initiated a significant advertising campaign during the year. 3. The client changed policies to require purchases and sales of securities to be approved by the board of directors. 4. The client began trading in derivatives in a hedging arrangement. 5. The client replaced a number of machines in the factory during the year. 5. The client replaced a number of machines in the factory during the year. 6. The client instituted a policy that all employees must take an annual vacation. 7. The client changed a policy that results in the internal auditors reporting to the audit committee rather than the CEO. 8. The client is planning to factor its accounts receivable because of a reduction of a credit line by the bank. 9. The client continues to pay bonuses to sales personnel based on their sales performance. 10. Several of the client's competitors have exited the market, leaving the client as the market leader. O Increases the risk of material misstatement O Decreases the risk of material misstatement O No substantive change in the risk of material misstatement

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