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Part $1$

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

lower

information risk. A review report provides

the highest level of

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

further

assurance and thus

no change in the amount of

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

lowest

for the loan with the audit report.