In the Audit of Loans Payable, It Is Common to Include

question 38

Multiple Choice

In the audit of loans payable, it is common to include tests of principal and interest payments as a part of the audit of the acquisitions and payment cycle because the payments are in the cash payments journal that is being sampled. It is also normal to test these transactions as part of the capital acquisitions and repayment cycle because:

• A) due to the infrequency of these transactions, in many cases no transactions involving loans payable are included in the sample tests of acquisitions and payments.
• B) replicating the evidence will provide the auditor with a higher level of assurance.
• C) it is not unusual for the auditor to duplicate a process, thereby, gathering a larger quantity of evidence.
• D) the tests done in the acquisitions and payments cycle will look only at the cash credit side so the tests done in the capital acquisitions and repayment cycle will look at the debit side of the transaction.

---

Definitions:

Current-Rate Method

An accounting method used to convert the financial statements of a foreign subsidiary into the parent company’s reporting currency by applying the current exchange rate.

Temporal Method

An exchange rate conversion technique where monetary assets and liabilities are converted at historical rates, while non-monetary assets and liabilities are converted at the current rate.

Historical Rate

refers to the exchange rates used to convert foreign currency transactions or balances to the reporting currency based on the rates in effect at the dates of the transactions or balance sheet dates.

Non-Monetary Assets

Assets that are not held in the form of cash or cash equivalents, such as property, equipment, and intangible assets.