DISCUSSION QUESTIONS AND PROBLEMS Required Required 222 2 (Objective 22-2} Items 1 through 6 are questions typically found in a standard internal control questionnaire used by auditors to obtain an understanding of internal control for notes payable. In using the questionnaire for a client, a "yes. response indicates a possible internal control, whereas a \"no' indicates a potential deciency. 1. Are liabilities for notes payable incurred only after written authorization by a proper company official? 2. Is a notes payable master le maintained? 3. Is a periodic reconciliation made of the notes payable master le with the actual notes outstanding by an individual who does not maintain the master le? 4. Is the individual who maintains the notes payable master file someone other than the a. person who approves the issue of new notes or handles cash? . Are paid notes cancelled and retained in the company les? . Are interest expense and accrued interest recomputed periodically by an individual who does not record interest transactions? For each of the preceding questions, state the purpose of the control. b. Po 3 dynfmons, identify the type of nancial statement misstate nA n c ' 01 were not in effect. c. For each of the potential misstatements in part b, list an audit procedure that can be used to determine whether a material misstatement exists. 22-23 (Objective 22-2) The following are frequently performed audit procedures for the verication of bonds payable issued in previous years: 1. 01$er d. Analyze the general ledger account for bonds payable, interest expense, and unamor tized bond discount or premium. Obtain a conrmation from the bondholder. Obtain a copy of the bond indenture agreement and review its important provisions. Determine that each of the bond indenture provisions has been met. . Test the client's calculations of interest expense, unamortized bond discount or premium, accrued interest, and bonds payable. . State the purpose of each of the ve audit procedures listed. . List the provisions for which the auditor should be alert in examining the bond indenture agreement. . For each provision listed in part b, explain how the auditor can determine whether its terms have been met. Explain how the auditor should verify the unamortized bond discount or premium. e. List the information that should be requested in the conrmation of bonds payable with the bondholder