AP$3\mathrm{.}5($LO $3,4)$ Audit risk components and materiality Carl's Computers imports computer hardware

and accessories from China, Japan, and South Korea. It has branches in every U$.$S$.$ capital city, and the

main administration office and central warehouse are in Chicago, Illinois. There is a branch manager in

each store plus a number $($depending on the size of the store$)$ of full$-$time staff. There are also several

part$-$time staff who work on weekends since the stores are open both Saturday and Sunday. Either the

branch manager or a senior member of the full$-$time staff is on duty at all times to supervise the parttime staff. Both part$-$time and full$-$time staff members are required to attend periodic company training

sessions covering product knowledge and inventory$-$ and cash$-$handling requirements.

The inventory is held after its arrival from overseas at the central warehouse and distributed to each

branch on receipt of an inventory transfer request authorized by the branch manager. The value of

inventory items ranges from a few cents to several thousand dollars. Competition is fierce in the

computer hardware industry. New products are continuously coming onto the market, and large

furniture and office supply discount retailers are heavy users of advertising and other promotions to win

customers from specialists like Carl's Computers. Carl's Computers' management has faced difficulty

keeping costs of supply down and has started to use new suppliers for some computer accessories such

as printers and ink