Question

Li Na is concerned about the significant and unusual estimates used by one of her lending clients. Li has requested that her client provide her with audited financial statements to help assess their creditworthiness. Which of the following sources of demand for audit and assurance services is Li most likely concerned with?

1) Reliability
2) Complexity
3) Competing incentives
4) Remoteness

Answer 1

To reassure a bank of its creditworthiness, a borrower can demonstrate financial capability through income forms, authorize a credit check, provide a cosigner, or offer collateral as a secure pledge for loan repayment.

Step-by-step explanation:

Individuals looking for a loan can provide reassurances to a bank through several methods. First, they can fill out forms regarding income sources, which demonstrates their capacity to repay the loan. Second, providing authorization for the bank to conduct a credit check on past borrowing history can show a history of reliability and creditworthiness. Third, offering a cosigner who will legally pledge to repay the loan if the borrower defaults can provide additional security to the bank. Lastly, providing collateral, such as property or equipment, gives the bank the right to seize and sell these assets should the borrower fail to repay the loan.