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.