La Casa is a housing development with over 350 employees. The main activity of the company is to purchase lands and develop it by building studios, one- and two-bedroom apartments, either for sale or for rental.

In addition to its land development activity, during the year ending 30 April 2021, La Casa purchased an office building for its own use at a cost of $25 million. The purchase was financed by a further issue of ordinary shares in the company for $9,000,000 and by a $16,000,000 loan from a commercial bank. The loan is secured by a fixed charge over the office building and is repayable over a period of twenty-five years.

Marie Brown have been assigned to the audit of the financial statements of La Casa for the year ending 30 April 2021 and has been instructed to arrange for a bank confirmation letter from the company's bank and to obtain copies of the minutes of the Directors' Board meetings for the year.

Your audit manager has confirmed that each of these is a good source of evidence as a means of verifying specific matters reflected in the company's financial statements.

Required:

(a) In conducting the audit of the Financial Statements of La Casa for the year ended   30 April 2021, what should be included in the confirmation letter from the company's bank?  

(b) In a review of the Board minutes of La Casa, state SIX (6) specific matters which would be   useful evidence in the audit ofthe company's financialstatements for theyear ending   30 April 2021.                                                      

 

(c) Explain the audit procedures that your firm should carry out to verify:

(i) the amount of the loan from the finance company.

(ii) the related interest charges; and

(iii) the disclosure of the loan and of the related interest charges; in the financial statements of La Casa for the year ending 30 April 2021.  

Answer rating: 100% (QA)

a Bank confirmation letter The bank confirmation letter should include the following information Existence of a loan to La Casa for 16000000 Loan purpose purchase of office building Loan repayment ter... View the full answer