[adsfasf]

An auditor’s program to examine long-term debt most likely would include steps that require
A. Comparing the original issuance value of the debt to its year-end market value.
B. Correlating interest expense recorded for the period with outstanding debt.
C. Verifying the existence of the debt by re-examining documentation related to the original issuance of the debt in a prior year.
D. Inspecting the accounts payable subsidiary ledger for unrecorded long-term debt

Hello, can anyone help me with this question? B is the correct answer and I agree. However, I don’t understand why C is not correct

It is always not a bad idea to check the original document, right? so why C is not correct? Hope someone can help me. Forgive me if I post the question to a wrong place. This is my first post on this forum

[Missy]

C wouldn't be correct because it doesn't support the balance due at year end, the original issuance may have been modified/refinanced since then or the entity could be making additional payments, etc.

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[adsfasf]

@mla11692

Thanks for your reply. However I still don't quite understand. The question did not specify that auditor needs to test its balance. Choice C is to test its existense, and original document should be a good source to test existense. Please correct me.. i don't know why I am wrong

[Missy]

Right but its the current year's financial statements being audited. A document that may be 5 years old doesn't support the existance of a liability on today's balance sheet, necessarily. (It might, but just as likely might not.)

Lets say the original document has a call option. Looking at doesn't tell you if the call has been exercised recently and the entire debt needs to be reclassified as short term.

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[adsfasf]

Thank you! Got it! : )

[Author]

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