Question

The Hobbes Corporation took out a 30-year mortgage on a new headquarters building on June 30, 2016 for $5,000,000 and pledged its only manufacturing facility and the land on which it stands as collateral. The monthly payment to the mortgagor is $22,452.23 and was first paid on July 1, 2016. Your firm has audited this client before, but the client has never had a mortgage in previous years. You are in charge of the current year audit for Thomas, which has a balance sheet date of December 31, 2016.

REQUIRED:

Explain why it is desirable to prepare a schedule for the permanent file regarding the mortgage. What type of information should this include?

Explain why the audit of mortgage payable, interest expense, and interest payable should all be performed together.

List audit procedures that are typically performed to verify the issue of the mortgage, the mortgage and the interest payable account balances at December 31, 2016, and the balance in interest expense for 2016.

What type of information should be disclosed in the footnotes for this mortgage to help the auditor determine whether the completeness and presentation/disclosure assertions are satisfied?

Answer 1

1.It is desirable to prepare the schedule for the permanent file regarding the mortgage for future reference of the auditor so that required information become easily available .Permanent file of the auditor includes the matter which remain same or the item that are required to be checked on continuous basis & does not change frequently.

Type of information this include:-

Mortgage related provision,as well as purchase price ,date of purchase.

Schedule of item pledged.

Amortization schedule of interest and repayment.

Terms and conditions of the loan.