Tuesday, April 14, 2009

#75 Auditing Interest Expense

What's the most effective way of auditing interest expense recorded?

In order to verfiy the reasonableness of interest expense recorded, we used the following formula:

Principal x Average Interest Rate x Period = Interest Expense

Some of the auditor would perform vouching to bank advice by tracing the amount reflected on bank advice to amount stated on General Ledger. However, vouching only ensure the existence, it does not address completeness.

As a result, reasonableness is always useful to check for the completeness of expenses recorded.


E4ma said...

Cool, thanks. was very helpful. but what if all i have is the entity's ledger account with no idea of the interest rate agreed when collecting the loan? How do I go about that.

E4ma said...

Thanks, was very helpful. But what if all i have is the entity's interest ledger, dont know the interest rate to use. How do I go about it?

E4ma said...

please reply