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

question 46

Multiple Choice

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.

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Definitions:

Expected ROE

The anticipated return on equity, predicting future profitability by estimating the rate of return on shareholders' equity.

Multistage DDM

A version of the Dividend Discount Model which assumes dividends grow at different rates in different stages of a company's life.

Treasury Bond Yields

The return investors can expect to receive from holding a government treasury bond until its maturity.

Earnings Yields

A financial metric calculated by dividing earnings per share by the current market price per share, serving as the inverse of the P/E ratio.