The following are frequently performed audit procedures for the verification of bonds payable issued in previous years:
1. Analyze the general ledger account for bonds payable, interest expense, and unamor-
tized bond discount or premium.
2. Obtain a confirmation from the bondholder.
3. Obtain a copy of the bond indenture agreement and review its important provisions.
4. Determine that each of the bond indenture provisions has been met.
5. Test the client’s calculations of interest expense, unamortized bond discount or pre-
mium, accrued interest, and bonds payable.
a. State the purpose of each of the five audit procedures listed.
b. List the provisions for which the auditor should be alert in examining the bond indenture agreement.
c. For each provision listed in part b., explain how the auditor can determine whether its terms have been met.
d. Explain how the auditor should verify the unamortized bond discount or premium.
e. List the information that should be requested in the confirmation of bonds payable
with the bondholder.
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