You are auditing the long-term notes payable account for a client. Which of the following audit procedures would you most likely employ?
A) Compare interest expense recorded by the client with the notes payable account for reasonableness.
B) Confirm bonds payable with individual bond holders.
C) Perform analytical procedures on the bond discount or premium account.
D) Examine bond documents for the presence of hybrid securities.

Question

Quizplus · Accepted Answer

Comparing the interest expense recorded by the client with the notes payable account is a common audit procedure for testing the valuation and accuracy of the long-term notes payable account. This helps ensure that interest expense is correctly recorded and that the balance of the notes payable account is properly valued.

Option B, confirming bonds payable with individual bond holders, would be more applicable for testing bonds payable rather than notes payable.

Option C, performing analytical procedures on the bond discount or premium account, would be more applicable for auditing bonds payable with a discount or premium on issuance rather than notes payable.

Option D, examining bond documents for the presence of hybrid securities, would be more relevant for auditing the issuance of hybrid securities rather than notes payable.

You Are Auditing the Long-Term Notes Payable Account for a Client