Requirement a$.$ Explain why the interest rate for the loan that requires a review report is lower than that for the loan that does not require a review. Explain why the interest rate for the loan that requires an audit report is lower than the interest rate for the other two loans.

The interest rate for the loan that requires a review report is lower than the loan that does not require a review because of the

$$

higher

lower

unchanged

information risk. A review report provides

$$

moderate

no

the highest level of

assurance to financial statement users. Compared to a review$$ report, an audit provides

$$

a lesser amount

further

no additional

assurance and thus

$$

a greater amount of

lower

no change in the amount of

information risk. As a$$ result, the interest rate is

$$

highest

lowest

somewhere in the middle

for the loan with the audit report.

Part $2$

Requirement b$.$ Calculate Waverly $$Corporation$\text{'}$s annual costs under each loan$$ agreement, including interest and costs for the CPA$$ firm's services. Indicate whether Waverly should keep its existing$$ loan, accept the offer from More Money $$Bank$,$ or accept the offer from Earn More Bank.

Begin by calculating the annual costs under each loan agreement. $($Complete all input fields. Enter a$"0"$ for any zero$$ balances.$)$

Lender

Cost of CPA Services

Annual Interest

Annual Loan Cost

Existing loan $($No CPA service$)$

More Money Bank $($CPA Review service$)$

Earn More Bank $($CPA Audit service$)$

Part $3$

Indicate whether Waverly should keep its existing$$ loan, accept the offer from More Money $$Bank$,$ or accept the offer from Earn More Bank.

Based on the analysis in the preceding$$ step, Waverly should

$$

keep its existing loan.

accept the offer from More Money Bank.

accept the offer from Earn More Bank.

Part $4$

Requirement c$.$ Assume that More Money Bank has offered the loan at a rate of $4\mathrm{.}3\%$ with a$$ review, and the cost of the audit has increased to $ $139$ comma $000$ due to new auditing standards requirements. Indicate whether Waverly should keep its existing$$ loan, accept the offer from More Money $$Bank$,$ or accept the offer from Earn More Bank.

Begin by calculating the annual costs under each loan agreement. $($Complete all input fields. Enter a$"0"$ for any zero$$ balances.$)$

Lender

Cost of CPA Services

Annual Interest

Annual Loan Cost

Existing loan $($No CPA service$)$

More Money Bank $($CPA Review service$)$

Earn More Bank $($CPA Audit service$)$

Part $5$

Indicate whether Waverly should keep its existing$$ loan, accept the offer from More Money $$Bank$,$ or accept the offer from Earn More Bank.

Based on the analysis in the preceding$$ step, Waverly should

$$

accept the offer from More Money Bank.

keep its existing loan.

accept the offer from Earn More Bank.

Part $6$

Requirement d$.$ Discuss why Waverly may desire to have an$$ audit, ignoring the potential reduction in interest costs.

Waverly may desire to have an audit because

$$

a bank requiring an audit is certainly the least risky bank to have a loan with.

a financial audit will exclude the company from being selected for a tax audit.

of the many other benefits that an audit provides $($discovery of errors$/$fraud$,$ suggestions of improved efficiency$/$effectiveness$,$ etc.$).$

Part $7$

Requirement e$.$ Explain how a strategic understanding of the$$ client's business may increase the value of the audit service.

Possessing a strategic understanding of the$$ client's business will help the auditor

$$

by enabling them to reduce the number of auditing steps and quantity of substantive testing required by the audit.

identify risks that may affect whether the financial statements are fairly stated and ways to help the client improve operations

to identify any and all fraud being committed throughout the organization.

$.$

The interest rate for the loan that requires a review report is lower than the loan that does not require a review because of theinformation risk.A review report providesassurance to financial statement users.Compared to a review report, an audit providesassurance and thusassurance and thusinformation risk.As a result, the interest rate isfor the loan with the audit report.Based on the analysis in the preceding step, Waverly shouldBased on the analysis in the preceding step, Waverly shouldWaverly may desire to have an audit becausePossessing a strategic understanding of the client's business will help the auditor.