RISKS

Dag Nilsson, statutory auditor, considers the audit risk at the financial statement level in the planning of the audit of the financial statements of LLB for the year ended December 31, 2021. Nilsson has gathered the following information concerning LLBs environment. LLB is a nationally insured bank and has been consistently more profitable than the industry average by making mortgages on properties in a prosperous rural area, which has experienced considerable growth in recent years. LLB packages its mortgages and sells them to large mortgage investment trusts. Despite recent volatility of interest rates, LLB has been able to continue selling its mortgages as a source of new lendable funds. LLBs board of directors is controlled by Kjell Stensaker, the majority stockholder, who is also the chief executive officer (CEO). Management at the banks branch offices has authority for directing and controlling LLBs operations and is compensated based on branch profitability. The internal auditor reports directly to Hakon Helvik, a minority stockholder, who is chairman of the boards audit committee. The accounting department has experienced little turnover in personnel during the five years Nilsson has audited LLB. LLBs formula consistently underestimates the allowance for loan losses, but its controller has always been receptive to Nilssons suggestions to increase the allowance during each engagement. During 2021, LLB opened a branch office in Ostersund, 300 km from its principal place of business. Although this branch is not yet profitable due to competition from several well- established regional banks, management believes that the branch will be profitable by 2023. Also during 2021 LLB increased the efficiency of its accounting operations by installing a new computer system.

QUESTION : Based only on the information above, describe the factors that most likely would have an effect on the risk of material misstatement. Indicate whether each factor increases (I) or decreases (D) the risk.