Millwight, CPA, is considering various risks in planning the audit of Arro Financial, a securities firm that has recently experienced difficulty due to the global financial crisis. Select from the option list provided whether each factor would most likely increase inherent risk, decrease inherent risk, increase control risk, decrease control risk, or have no effect on risk. Each choice may be used once, more than once, or not at all.

1. Arro replaced member of the audit committee with an outside board member with significantly more financial experience.

2. The internal auditor for Arro reports directly to the CFO

3. Arro was able to increase coverage of their liability insurance by changing the insurance provider

4. Arro has been operating at a loss, but the turnaround in the economy will result in a profitable year

5. Arro has settled a significant lawsuit with a customer that had been ongoing for several years.

6. Arro is in the process of installing a new computer software system that will not be fully operational until the following year. Some of the financial processes have been transferred to the new system, but others have not

7. Arro has recently engaged in hedging activities by the purchase of derivatives

8. Arro has adopted a new code of ethical conduct that each employee must read and agree to abide by

9. Arro's board of directors changed its meeting location from Arro's bank to Arro's facility

10. Arro has received a letter from a federal agency responsible for oversight requesting records of transactions for several significant customer accounts