(Solved): Fiona Pearson is an audit partner of Pearson \& Co. a chartered accountants fim. She is considerin ...

Fiona Pearson is an audit partner of Pearson \& Co. a chartered accountants fim. She is considering the audit risk at the overall financial statement level in planning the audit for the finance company AMMM Bank Bhd., for the year ending 30 June 2005 . This risk is influenced by a combination of factors related to management, industry and entity. The following information is given below. i) AMM Bank has been consistently more profitable than the industry average by marketing mortgages on properties in Shah Alam, which has expenienced considerable growth in recent years. The interest rates were very competitive in the current years. ii) AMM Bank's Chief Execufive Officer (CEO), Datuk Zainal Merican, is the majority shareholder. AMM Bank has branches all over Malaysia, with each branch being given authority to run their own operations and the management are compensated according to the profi made. ii) The accounting department has suffered frequent staff tumover during the past few years. AMM Bank's management has the policy of underestimating allowance for loan losses, however the financial controller is not in agreement in Fiona's suggestion to increase the allowance. W) Early January 2005, AMM Bank opened a branch office in Jalan Bukit Bintang. a very competitive banking area. The performance has yet to show any profit, however the management is confident that it will at least break even in 2006. v) During 2005, the company fully computerized its operations natiomwide in preparation for the e-banking facilities. Required: From the information given above, indicate the factors that would affect (increase and decrease) the risk of material misstatements.