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2. For each of the following situations, explain how risk of material misstatement should be assessed and what effect that assessment will have on (a)
2. For each of the following situations, explain how risk of material misstatement should be assessed and what effect that assessment will have on (a) detection risk and (b) substantive procedures. Specifically, indicate whether the risk of material misstatement should increase or decrease and why. Then indicate how that assessment affects detection risk (increase or decrease) and extent of substantive tests (increase or decrease). (10 points) 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 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 2. For each of the following situations, explain how risk of material misstatement should be assessed and what effect that assessment will have on (a) detection risk and (b) substantive procedures. Specifically, indicate whether the risk of material misstatement should increase or decrease and why. Then indicate how that assessment affects detection risk (increase or decrease) and extent of substantive tests (increase or decrease). (10 points) 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 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
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