Avery Island Dairy is a boutique cheese maker based on Avery Island, Louisiana. Over the years, the business has grown by supplying local retailers and through exports. In addition, there is a “farm-gate” shop and café located next to the main processing plant on Avery Island serving tourists who also visit the other specialist food and wine businesses in the region. Quality control over the cheese-manufacturing process and storage of raw materials and finished products at Avery Island Dairy is extremely high. All members of the business are committed to high product quality because any poor food-handling practices that could result in a drop in cheese quality or contamination of the products would ruin the business very quickly.

The export arm has become the largest revenue earner for the business and is managed by the younger of the two brothers who have run Avery Island Dairy since it was established. Jim Guidry has a natural flair for sales and marketing but is not very good at completing the associated detailed paperwork. Some of the export deals have been poorly documented, and Jim often agrees to different prices for different clients without consulting his older brother, Bob, or informing the sales department. Consequently, there are often disputes about invoices, and Jim makes frequent adjustments to customer accounts using credit notes when clients complain about their statements. Jim sometimes falls behind in responding to customer complaints because he is very busy juggling the demands of making export sales and running his other business, Café Consulting, which provides contract staff for the café business at Avery Island Dairy.

Required

a. Identify the factors that would affect the preliminary assessment of inherent risk and control risk at Avery Island Dairy.

b. Analyze how these factors would influence your choice between the predominantly substantive approach and the reliance on controls approach for sales, inventory, and receivables.