PA is comparing the liabilities section of ABC Ltd.from last year to this year.Last year,ABC Ltd.had large loans due to major shareholders and officers and to one bank.This year,the debt has been reorganized so there are now two different banks used for loans.Instead of having debt to shareholders and officers,the company now owes notes to 25 different foreign investors,who are entitled to convert the debt to shares if interest is not paid or if principal installments are not paid on time.For this year's audit,how will the change in debt structure affect the audit risk model?
A)no effect on the audit risk model
B)higher control risk
C)lower acceptable audit risk
D)higher acceptable audit risk

Question

Quizplus · Accepted Answer

The change in debt structure introduces complexity and potential uncertainty due to the involvement of multiple foreign investors and convertible notes, which could increase the inherent risk. This may lead auditors to lower the acceptable audit risk to ensure they provide a reasonable assurance that the financial statements are free from material misstatement.

PA Is Comparing the Liabilities Section of ABC Ltd