Ann Marcus, CPA, is performing an audit for one of her clients, Artistcraft Ltd., a glass factory, for its December 31, 2023, year end. The audit program requires a substantive analytical procedure to be performed on the reasonableness of Artistcraft's interest expense on its long-term debt. Ann has identified the following information: Long-term debt balance confirmed by the bank in prior-year file Long-term debt balance confirmed by the bank in the current year Interest rate per the bank confirmation Balance per the general ledger Performance materiality (a) $1,545,861 $1,427,529 6.25 % $89,525 $7,000 Which of the following are true with respect to this analytic substantive procedure? The balances of the long-term debt and the interest rate are taken from bank confirmations which is external, third party evidence, and therefore highly reliable. There is no need to need to consider the reliability of the underlying data when using analytical procedures. This analytical procedure is a primary test of a balance, and therefore, it provides persuasive evidence. □ If this is a persuasive analytical test, then no further substantive procedures need to be performed on the interest expense account. The average loan balance is $1,486,695 and this should be multiplied by the interest rate to determine the interest expense that must be recorded in the client's general ledger. This test provides corroborative evidence. □ If the auditor calculates interest expense should be $92,918, then the auditor needs to perform more work.
Ann Marcus, CPA, is performing an audit for one of her clients, Artistcraft Ltd., a glass factory, for its December 31, 2023, year end. The audit program requires a substantive analytical procedure to be performed on the reasonableness of Artistcraft's interest expense on its long-term debt. Ann has identified the following information: Long-term debt balance confirmed by the bank in prior-year file Long-term debt balance confirmed by the bank in the current year Interest rate per the bank confirmation Balance per the general ledger Performance materiality (a) $1,545,861 $1,427,529 6.25 % $89,525 $7,000 Which of the following are true with respect to this analytic substantive procedure? The balances of the long-term debt and the interest rate are taken from bank confirmations which is external, third party evidence, and therefore highly reliable. There is no need to need to consider the reliability of the underlying data when using analytical procedures. This analytical procedure is a primary test of a balance, and therefore, it provides persuasive evidence. □ If this is a persuasive analytical test, then no further substantive procedures need to be performed on the interest expense account. The average loan balance is $1,486,695 and this should be multiplied by the interest rate to determine the interest expense that must be recorded in the client's general ledger. This test provides corroborative evidence. □ If the auditor calculates interest expense should be $92,918, then the auditor needs to perform more work.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Ann Marcus, CPA, is performing an audit for one of her clients, Artistcraft Ltd., a glass factory, for its December 31, 2023, year end.
The audit program requires a substantive analytical procedure to be performed on the reasonableness of Artistcraft's interest
expense on its long-term debt.
Ann has identified the following information:
Long-term debt balance confirmed by the bank in prior-year file
Long-term debt balance confirmed by the bank in the current year
Interest rate per the bank confirmation
Balance per the general ledger
Performance materiality
(a)
$1,545,861
$1,427,529
6.25 %
$89,525
$7,000
Which of the following are true with respect to this analytic substantive procedure?
The balances of the long-term debt and the interest rate are taken from bank confirmations which is external, third
party evidence, and therefore highly reliable.
There is no need to need to consider the reliability of the underlying data when using analytical procedures.
This analytical procedure is a primary test of a balance, and therefore, it provides persuasive evidence.
□ If this is a persuasive analytical test, then no further substantive procedures need to be performed on the interest
expense account.
The average loan balance is $1,486,695 and this should be multiplied by the interest rate to determine the interest
expense that must be recorded in the client's general ledger.
This test provides corroborative evidence.
□ If the auditor calculates interest expense should be $92,918, then the auditor needs to perform more work.
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