Red Business took out a mortgage loan of $400m on August 1, 2020 to construct an apartment complex and used the Head Office building and land as the security for the loan. Each month subsequent to the issue of the mortgage, a payment of $400,000 was paid to the mortgagor. You are in charge of the current year audit for Red Business, which has a balance sheet date of December 31, 2020. Explain the importance of preparing an audit schedule for the permanent file in order to audit the above mortgage and state the type of information should be included the schedule. In conducting the audit list and explain the four accounts that should be included in the audit. Prepare a memo to the management of Red Business explaining the substantive procedure and the appropriate audit evidence required in order to verify the issue of the mortgage, the balance in the mortgage and interest payable accounts at December 31, 2020, and the balance in interest expenses for the year 2020.

Auditing - Financial statement audits or an unbiased review and assessment of a company's financial…

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Red Business took out a mortgage loan of $400m on August 1, 2020 to construct an apartment complex and used the Head Office building and land as the security for the loan. Each month subsequent to the issue of the mortgage, a payment of $400,000 was paid to the mortgagor. You are in charge of the current year audit for Red Business, which has a balance sheet date of December 31, 2020.

Explain the importance of preparing an audit schedule for the permanent file in order to audit the above mortgage and state the type of information should be included the schedule.
In conducting the audit list and explain the four accounts that should be included in the audit.
Prepare a memo to the management of Red Business explaining the substantive procedure and the appropriate audit evidence required in order to verify the issue of the mortgage, the balance in the mortgage and interest payable accounts at December 31, 2020, and the balance in interest expenses for the year 2020.

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