Problem: LLL Avionics Ltd. has contacted your accounting firm to inquire about the cost of an external audit. The company's president explained that he feels that "the previous auditor charged too much and only issued a qualified opinion." Your firm was recommended to LLL by your bank manager. LLL has a large loan request at the bank, and the interest rate of the new loan will depend on the audit opinion. As the partner in charge of this file, you interviewed the president and controller of the company as part of your decision to accept or reject LLL as a client. You have found that the company has a new design for an aircraft and plans to borrow funds from the bank and to issue common shares to finance a prototype plane to test the design. The new funds will also greatly improve the company's balance sheet by providing the funds to bring the company's existing bank loan up to date. If the design is successful, more common shares will be issued for more capital.
The controller was very helpful in your discussions, and you note his high level of enthusiasm for the project as this is his first job at this level. However, the president was not so helpful and seemed annoyed with your questions.
Indicate five factors in the above situation that impact the risk of material misstatement. Explain your answer.