$9-31($OBJECTIVES $9-1,9-2,9-4)$ Moranda and Sills, LLP$,$ has served for over $10$ years as the auditor of the financial statements of Newcastle Bank and Trust. The firm is conducting its audit planning for the current fiscal year and is in the process of performing risk assessment procedures. Based on inquiries and other information obtained, the auditors learned that the bank is finalizing an acquisition of a smaller community bank located in another region of the state. Management anticipates that the transaction will close in the third quarter, and, while there will be some challenges in integrating the IT systems of the acquired bank with Newcastle$$s systems, the bank should realize a number of operational cost savings over the long term.

During the past year, the bank has expanded its online service options for customers, allowing them to transfer funds and make electronic payments from checking and savings accounts. The system has been well received by customers and the bank hopes to continue expanding those services. The challenge for Newcastle is that they are struggling to retain IT personnel given the strong job market for individuals with those skills.

Credit risk management continues to be a challenge for all banks, including Newcastle, and regulators continue to spend a lot of time on credit evaluation issues. The bank has 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, especially given the loan demand in the marketplace.

The bank has expanded its investment portfolio into new types of instruments subject to fair value accounting. Management has engaged an outside valuation expert to ensure that the assets are appropriately valued 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 $3-$year strategic plan.

Required

Describe any risks of material misstatement at the financial statement level.

Describe any risks of material misstatement at the assertion level.

Which, if any, risks would be considered a significant risk?