Question

Moranda and Sill, LLP, has served for over 10 years as the auditor of the financial statements of Highland Bank and Trust. The firm is conducting its audit planning for the current fiscal year and is in the process of performing risk assesment procedures. Based on inquiries ond other information obtained, the auditors learned that the bank is finalizing an aquisation of a smaller community bank located in another region of the state. Management anticipates that transaction will close in the third quarter, and, while there will be some challenges in integrating the IT systems of the aquired bank with Highland sytems, the bank should realize a number of operational cost savings over the long-term. During the past year, tha bank has expanded its online service options for customers, who can now remotely deposit funds into and withdraw funds from checkings and savings accounts. The systems has been well received by customers and the bank hopes to continue expanding those services. The challenge for Highland is that they are strugglingto retain IT personell given strong job market for individuals with those skills. Credit risk management continues to be a challenge for all banks, including Highland, and regulators continue to spend a lot of time on credit evaluation issues. The bankhas a dedicated underwriting staff that continually evaluates the collectibility of loans outstanding. Unfortunately , some of the credit review staff recently left the bank to work for a competitor. Competition in the community banking space is tough, especiallygiven the slowloan demand in the marketplace. The bank has expanded its investment portfolio into a number of new types of instruments subject to fair value accounting. Management has engaged an outside valuation expert to ensure that the valuation are properly measured and reported. Fortunately, the bank's capital position is strong and it far exceeds regulatory minimums. Capital is available to support growth goals in the bank's three-year strategic plan. 1. Describe any risks of material misstatement at the financial statement level. 2. Describe any risks of material misstatement at the assertion level. 3. Which, if any, risks would be considered a significant risk?

Answer 1

ANSWER PART (a):-- Risk of material misstatement at the financial statement level are given below:

• Risk assessment procedures should include inquiries of management and other relevant individuals, analytical procedures, observation and enquiry. hence if auditor will not perform his task correctly on the basis of relavent information then it will led to risk of material mis statement at the financial level.
• An important part of assessing the risk of material misstatement is that the risks identified should be prioritised. This is because ISA 315 determines that risks which are identified as being significant risks require special audit consideration.

ANSWER PART (b):-- risk of material misstatement at the assertion level

• successfully identify risks of material misstatement, the auditor should use a business risk approach.
• The associated risk of material misstatement lies in the valuation of inventory therefore there is a risk of misstatement at the assertion level.

ANSWER PART (c):-- one of the major risk to any enterprise is the risk from his competitor in the market. hence in order be sucessfull and to stand beyand anyone in the market. enterprise should keep in mind the growth goals. if not then it will be considered as the significant risk to management.