You are the audit senior responsible for the audit of Dragon Pakistan Limited (DPL), a listed company. DPL operates in the pharmaceutical industry which is highly regulated by the government and heavy fines are placed on any non-compliance of the regulations.

The main product of DPL is Drug A. The raw material for the production of Drug A is imported from Switzerland. Drug A has been underperforming for a number of years and is currently sold at low margins. Last year, a competitor introduced a much improved version of Drug A.

Considering the tough competition, all the companies in the pharmaceutical industry including DPL have to continuously carry out research activities for development of new drugs and improvement of the existing drugs.

Required:

(a) Outline the business risks that exist in DPL.

(b) Identify and briefly discuss the financial statement line items that could be misstated as a result of the business risks outlined in (a) above.