Moranda and Sill, LLP, has served for over 10 years as theauditor of the financial statements of Highland Bank and Trust. Thefirm is conducting its audit planning for the current fiscal yearand is in the process of performing risk assesment procedures.Based on inquiries ond other information obtained, the auditorslearned that the bank is finalizing an aquisation of a smallercommunity bank located in another region of the state. Managementanticipates that transaction will close in the third quarter, and,while there will be some challenges in integrating the IT systemsof the aquired bank with Highland sytems, the bank should realize anumber of operational cost savings over the long-term. During thepast year, tha bank has expanded its online service options forcustomers, who can now remotely deposit funds into and withdrawfunds from checkings and savings accounts. The systems has beenwell received by customers and the bank hopes to continue expandingthose services. The challenge for Highland is that they arestrugglingto retain IT personell given strong job market forindividuals with those skills. Credit risk management continues tobe a challenge for all banks, including Highland, and regulatorscontinue to spend a lot of time on credit evaluation issues. Thebankhas a dedicated underwriting staff that continually evaluatesthe collectibility of loans outstanding. Unfortunately , some ofthe credit review staff recently left the bank to work for acompetitor. Competition in the community banking space is tough,especiallygiven the slowloan demand in the marketplace. The bankhas expanded its investment portfolio into a number of new types ofinstruments subject to fair value accounting. Management hasengaged an outside valuation expert to ensure that the valuationare properly measured and reported. Fortunately, the bank's capitalposition is strong and it far exceeds regulatory minimums. Capitalis available to support growth goals in the bank's three-yearstrategic plan. 1. Describe any risks of material misstatement atthe financial statement level. 2. Describe any risks of materialmisstatement at the assertion level. 3. Which, if any, risks wouldbe considered a significant risk?