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Our audit engagement team is planning for the upcoming audit of MADA co. who recently underwent a significant restructuring of its debt. The restructuring was necessary as economic conditions hampered MADAs ability to make scheduled re-payments of its debt obligations. The restructured debt agreements included new debt covenants. In auditing the debt obligation in the prior year (before the restructuring), the team established materiality specific to the financial statement debt account at a lower amount than overall financial statement materiality. In planning the audit for the current year, the team plans to use a similar materiality level. What should the team do regarding restructuring the debt? Is it appropriate to use the same materiality level? What type of risks would be impacted by this situation (AAR-CR-IR-PDR) and what they should do regarding evidence?
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Our audit engagement team is planning for the upcoming audit of MADA co. who recently underwent a significant restructuring of its debt. The restructuring was necessary as economic conditions hampered MADAs ability to make scheduled re-payments of its debt obligations. The restructured debt agreements included new debt covenants. In auditing the debt obligation in the prior year (before the restructuring), the team established materiality specific to the financial statement debt account at a lower amount than overall financial statement materiality. In planning the audit for the current year, the team plans to use a similar materiality level. What should the team do regarding restructuring the debt? Is it appropriate to use the same materiality level? What type of risks would be impacted by this situation (AAR-CR-IR-PDR) and what they should do regarding evidence?
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