Reference no: EM132595075
Question - Lina Zhang, CPA, is performing an audit for one of her clients, Le Marche, a coffee chain, for its December 31, 2020, yearend. The audit program requires a substantive analytical procedure to be performed on the reasonableness of Le Marche's interest expense on its long-term debt.
Long-term debt balance confirmed by the bank in prior-year file 12/31/2019 $ 620,000
Long-term debt balance confirmed by the bank in the current year 12/31/2020 $ 457,530
Interest rate per the bank confirmation 4.75%Interest Expense Balance per the general ledger $ 34,525
Performance materiality $ 5,000
Using the information provided by Lina, please perform the following:
a) Assess the reliability of the data provided by Lina.
b) Using the average loan balance, make a working paper calculating the expected interest expense. Compare this to the amount recorded by the client in the general ledger and make a conclusion. Show your calculations.
c) Base on the result of this SAP, should Lina perform additional substantive procedures? state your reason.