For each of the following situations, describe how risk of material misstatement should be assessed and what effect the assessment will have on detection risk.
(i) Johnson is a fast-growing trucking company. The company is publicly held, but Ivan Johnson and his sons control 55% of the shares. Mr Johnson is Chairman of the Board and Chief Executive Officer (CEO). He personally makes all major decisions with little consultation with the Board of Directors. Most of the directors, however, are either members of the Johnson family or long-standing friends. The board basically rubber-stamps Mr Johnson's decisions.
(ii) The Focus Bank has been your client for the past two years. During that period, you have had numerous arguments with the president and the controller over a number of accounting issues. The major issue is related to the bank's reserves for loan losses and the value of collateral. Your prior audits have indicated that a significant adjustment is required each year to the loan loss reserves.