The Fox Company is a medium-sized industrial client that has been audited by your public accounting firm for several years. The only interest-bearing debt owed by Fox Company is $200,000 in long-term notes payable held by the bank. The notes were issued three years previously and will mature in six more years. Fox Company is highly profitable, has no pressing needs for additional financing, and has excellent internal controls over the recording of loan transactions and related interest costs.
REQUIRED
a. Describe the auditing procedures that you think will benecessary for notes payable and related interest accounts in these circumstances.
b. How would your answer differ if Fox Company were unprofitable, had a need for additional financing, and had weak internal controls?