PA Is Comparing the Liabilities Section of ABC Ltd

question 16

Multiple Choice

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

---

Definitions:

Unknown Person

refers to an individual whose identity is not known or cannot be established at a given time.

Infants

Young human children, particularly from birth to one year of age, characterized by rapid physical and cognitive development.

Informational Influence

A reason for conformity based on people’s desire to be correct.

Conformity

The act of matching attitudes, beliefs, and behaviors to group norms, policies, or societal expectations.