Consider the audit procedure to confirm outstanding balances, terms, conditions, and compliance with covenants with the grantor or trustee of the debt at year-end.
a. How does the auditor perform this procedure? What are the auditors’ responsibilities for it?
b. When is the procedure performed?
c. What is the purpose of the external confirmation?
d. Describe the assertions associated with the confirmation. Explain why they are important to the long-term debt process.
e. Identify the accounts that could be misstated if confirmations are not performed.
f. If these accounts are misstated, how will this effect outsiders? Explain your answer.