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:

Required

a. Assess the reliability of the data provided by Ann.

b. Using the average loan balance and the stated interest rate, prepare a working paper calculating the expected interest expense. Compare this to the amount recorded by the client in the general ledger and make a conclusion.

c. What level of evidence does this test provide?

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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 $1,545,861 $1,427,529 6.25% $89,525 $7,000