For each of the following situations, explain how risk of material misstatement should be assessed and what effect that assessment will have on detection risk.
a. Johnson, Inc., is a fast-growing turcking company operating in the south-eastern part of the United States. The company is publicly held, but Ivan Johnson and his sons control 55 percent of the stock. Ivan Johnson is the chairman of the board and 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 Ivan Johnson's decisions
b. MaxiWrite Corporation is one of several companioes engaged in the manufacture of high-speed, high-capacity data storage devices. The inductry is very competitive and subject to quick changes in technology. MaxiWrite's operating results would place the company in the second quartile in terms of profitability and financial position. The comoany has never been the leader in the industry, with its products typically slightly behind the industry leader's in terms of performance.
c. The First National Bank of POnd City has been your client for the past two years. During that period you have numerous arguments with the president and the controller over a number of accounting issues. The major issue has related to the bank's reserve for a loan losses and the value of collateral. Your prior audits have indicted that a significant adjustment is required each year to the loan loss reserves.