1-17 A. The interest rate for the United National Bank loan is lower than the original loan since a review report by a CPA would lower the information risk. The same goes for the First City Bank yet an even lower rate because an audit report is even more detailed, therefore, lower the information risk more. B. The loan from First City Bank offers the best annual costs: Bank | CPA Costs | Annual Interest | Total Annual Cost | Current Loan | 0 | 360,000 | 360,000 | United National | 35,000 | 300,000 | 335,000 | First City | 60,000 | 240,000 | 300,000 | C. Busch Corp should take the loan from United National: Bank | CPA Costs | Annual Interest | Total Annual Cost | Current Loan | 0 | 360,000 | 360,000 | United National | 35,000 | 270,000 | 305,000 | First City | 80,000 | 240,000 | 320,000 | D. Busch Corp may desire to have an audit regardless of the cost since it has the potential of helping to detect fraud, assist in management decision making and help with recommendation for control efficiency. E. The value of the audit is higher when the auditor has a substantial understanding of the business the client is in. In order to assess risks, accuracies and help recommend controls, the auditor needs to understand the structure of the industry, specific regulations, technology used and the nature of the business’s customers and creditors.
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A. Definition of auditing: 1. Information- quantity and quality of the trucks 2. Established criteria- number of trucks parked on the night of June 30, 2013, ownership of the trucks, physical condition and fair market value of each truck 3. Accumulating and evaluating evidence- determine trucks existence by counting them at the parking lot, verifying registration documents against VIN numbers, examine physical condition of each truck and determining fair market value