a)Explain briefly the term "materiality" and its importance in the context of financial reporting and auditing.

b)Berjaya Gemilang Company (BGC) operates a road maintenance company. Consider the following information;

Your firm has just been appointed auditor of BGC at its annual general meeting. During your planning of the audit, you notice that BGC is an unlisted public company and its director do not consider it to be reporting entity. BGC has prepared special-purpose financial report for the past 5 years. It has significant bank debts and is required to lodge audited accounts with its banker within 90 days of year end.

BGC recently won a substantial contract to perform road maintenance work for Malaysia government for the next 3 years. As a result of winning the contract, to meet the increased demands and satisfy the specialized nature of the work for the government, BGC purchased additional machinery. The machinery has an expected life of 10 years.

BGC is also involved in the manufacture of backyard water tanks. A revolutionary process developed a couple of years ago has enabled BGC to build a tank far superior to any of its competitors, at half of the price. It has therefore denominated the market over the past few years. However, you recently read a weekend newspaper in which you saw an article previewing BGC's main competitors' new tank. It is mad of a new material called Xenarafom, and it will be superior to BGC's tank and cost 30% less.

Required:

i)Briefly explain why each of the three situations above represent a risk.

ii)Identify the main account or group of accounts affected by these risks and how the risks would be affected the audit plan.