Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Question
Chapter 22, Problem 7RQ
To determine
Determine the restrictions that long term creditors put while granting loan and the ways of finding out these restrictions.
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Students have asked these similar questions
In order to make sure that loans are properly classified, the auditor would:
a. Examine due dates on duplicate copies of loan agreements to determine whether all or part are a non-current liability.
b. Examine the loan agreements to determine whether the company has obligations for payment.
c. Trace the totals on the loans list to the general ledger.
d. Examine corporate minutes for loan approval.
Typically, bankers require potential borrowers to provide audited financial documents with their loan application.Why is it necessary for a CPA to audit financial statements?
Managers wishing to avoid loan covenant violations may resort to making accounting changes that increase reported earnings. True or False?
Chapter 22 Solutions
Auditing And Assurance Services
Ch. 22 - List four examples of interest-bearing liability...Ch. 22 - Prob. 2RQCh. 22 - Prob. 3RQCh. 22 - Prob. 4RQCh. 22 - Prob. 5RQCh. 22 - Distinguish between (a) tests of controls and...Ch. 22 - Prob. 7RQCh. 22 - Prob. 8RQCh. 22 - Prob. 9RQCh. 22 - Prob. 10RQ
Ch. 22 - Prob. 11RQCh. 22 - Prob. 12RQCh. 22 - Prob. 13RQCh. 22 - Prob. 14RQCh. 22 - Prob. 15RQCh. 22 - Explain the relationship between the audit of...Ch. 22 - Prob. 17.1MCQCh. 22 - Prob. 17.2MCQCh. 22 - Prob. 17.3MCQCh. 22 - Prob. 18.1MCQCh. 22 - Prob. 18.2MCQCh. 22 - Prob. 18.3MCQCh. 22 - Prob. 19.1MCQCh. 22 - Prob. 19.2MCQCh. 22 - Prob. 19.3MCQCh. 22 - Prob. 20DQPCh. 22 - Prob. 21DQPCh. 22 - Prob. 22DQPCh. 22 - Prob. 23DQPCh. 22 - Prob. 24DQPCh. 22 - Prob. 25DQPCh. 22 - Prob. 26DQPCh. 22 - Prob. 27DQPCh. 22 - Prob. 28DQPCh. 22 - Prob. 29DQPCh. 22 - Prob. 30DQP
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- (please correct and incorrect option explain and correct answer this question) Match the following descriptions with each of the components in the loan review process. Review Later Involves re-assessing any changes that have occurred within management that may impact the business ability to tackle potential issues. Involves re-assessing the direction of the business, potential opportunities, and other issues the company is facing. Involves re-assessing any assets that are being used as protection in the case of default. Involves re-assessing the cash flow and financial position of the borrower. Financial statement review Security review Management review Business review (please correct and incorrect option explain and correct answer) Match the following descriptions with each of the components in the loan review process. Review Later Involves re-assessing any changes that have occurred within management that may impact the business ability to tackle potential issues. Involves…arrow_forward(AACSB) AnalysisIdentify the categories used on a classified balance sheet to report assets and liabilities. How do youdetermine what goes into each category? Why would a banker considering a loan to your company want toknow whether an asset or liability is current or long-term?arrow_forwardWhat is the formula used to determine the amount repayable to the lender under the Cash Back Option if the borrower decides to refinance their mortgage during the term? Select one: a. (Number of full or partial months remaining in the term / Original Mortgage amount) x (Cashback % / Number of months in the term) b. ((Cashback % x Original Mortgage amount x Number of full or partial months remaining in the term) / Number of months in the term) c. (Original Mortgage amount/Cashback % x Number of full or partial months remaining in the term)/ Number of months in the term d. (Number of full or partial months remaining in the term x Number of months in the term) / (Cashback % x Original Mortgage amount)arrow_forward
- Explain how the bank’s decisions to increase loan loss provision will affect the above balance sheet and income statement.arrow_forwardLoan covenants are used for which of the following reasons?a. To protect the lender from the borrower’s substantially weakening of the latter’s financial position.b. To protect the borrower from the lender’s calling the loan early.c. To protect the auditors from false information by the borrower.d. To protect shareholders from management taking on too much debt.arrow_forwardWhich of the following is an example of faithful representation? A Showing lease payments as a rental expense B Being prudent by recording the entire amount of a convertible loan as a liability C Creating a provision for staff relocation costs as part of a planned restructuring D Recording a sale and repurchase transaction with a bank as a loan rather than a salearrow_forward
- Which are the major problems facing a lender when reviewing a loan request made by a borrower?arrow_forwardDuring the review of loan contracts and agreements, the auditor would most likely figure out the following, except: Choices Related disclosures pertaining to assets pledged as collateral. The accuracy of interest expense recorded by the entity. The existence of loans. The completeness of loans.arrow_forwardWhich of the following statements is incorrect? A A bank providing a loan to the entity is not a related party transaction. An entity should neither accrue nor disclose when it cosigned a mortgage note on the home of its president B guaranteeing the indebtedness in the event that the president should default. The entity considers the likelihood to default to be remote. Post-employment benefit is part of the compensation of key management personnel. An entity is not required to disclose if it has a common director with another entity.arrow_forward
- What makes product warranties considered as contingent liabilities? Also, what Generally Accepted Accounting Principle supports how accountants record contingent liabilities?arrow_forwardDuring the audit of Albert Eistein, what relevant assertion should be used to record loans receivable net of an allowance for loan losses when allowance should adequately cover any estimated losses inherent in the loan portfolio but not excessive losses? a. Existence or occurrenceb. Valuation or allocationc. Cutoffd. Rights or obligations Among the prescribed audit activities provided below, which of the following would effectively help Metro bank determine its proper allowance for loan losses? a. Make visits to the borrower's commercial business site periodically.b. Have procedures in place to identify problem loans in a timely fashion.c. Identify any weaknesses in the institution's lending process.d. Obtain additional collateral for a loan. When assessing the reasonableness of Metro Bank's allowance for loan losses as a whole, you discovered that his estimate differs from the recorded allowance and that the difference is immaterial. How should you address this finding in your audit?…arrow_forwardAnswer the following questions in depth .... Isn't estimating bad debts a way of manipulating net income? How does a company keep control on these estimates? How does one go about determining if noncollectable receivables are within a reasonable range?arrow_forward
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