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Question /o Risk of Material Misstatement Howard, CPA, is considering the risk of material mistatement at the financial statement level it planning the audit of
Question /o Risk of Material Misstatement Howard, CPA, is considering the risk of material mistatement at the financial statement level it planning the audit of Oak Bank financial statements for the year ended December 31, year 1. The risk of material misstatement at the financial statement level may be indicated by a combination of factors related to management, the industry, and the entity. In assessing such factors, Howard has gathered the following information concerning Oak Bank's environment. Oak Bank's formula consistently underestimates the allowance for loan losses, but its control always been receptive to H ler has oward's suggestions to increase the allowance during each engagement. Du ring year 1, Oak Bank opened a branch office in a suburban town thirty miles from its principal place of business. Although this branch is not yet profitable due to competition from several well- established local banks, management believes that the branch will be profitable by year 3. Also, during year 1, Oak Bank increased the efficiency of its accounting operations by instaling a new, sophisticated computer system. Based o decreased the risks of material misstatement. nly on the information above, determine whether each of the factors below increased or Effect on risk of material misstatement Factors 1. Management fails to establish proper procedures to provide reasonable assurance of reliable accounting estimates. 2. Management has been receptive to Howard's suggestions relating to aceounting adjustments 3. Oak Bank recently opened a new branch office that is not yet profitable. 4. Oak Bank recently installed a new sophisticated computer systm
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