For each of the following situations, explain how risk of material misstate- ment should be assessed and what effect that assessment will have on detection risk.

a. Johnson, Inc., is a fast-growing trucking company operating in the southeastern 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 chairman of the board and CEO. He personally makes all major de- cisions 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. Close-Moor Stores has experienced slower sales during the last year. There is a new vice president of finance and a new controller. Musiciak, president of the company, has a reputation for hard-nosed business tactics, and he is always concerned with meeting forecast earnings.

c. MaxiWrite Corporation is one of several companies engaged in the man- ufacture of high-speed, high-capacity disk drives. The industry 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 company has never been the leader in the industry, with its products typically slightly behind the industry leader's in terms of performance.

d. The First National Bank of Pond City 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 has related to the bank's reserve 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.. K-9875