Problem

Maslovskaya, CPA, has been engaged to examine the financial statements of Broadwall Corpor...

Maslovskaya, CPA, has been engaged to examine the financial statements of Broadwall Corporation for the year ended December 31, 2013. During the year, Broadwall obtained a long-term loan from a local bank pursuant to a financing agreement that provided that

1. The loan was to be secured by the company’s inventory and accounts receivable.

2. The company was not to pay dividends without permission from the bank.

3. Monthly installment payments were to commence July 1, 2013. In addition, during the year, the company borrowed various short-term amounts from the president of the company, including substantial amounts just prior to year-end.

Required:

a. For purposes of the audit of the financial statements of Broadwall Corporation, what procedures should Maslovskaya employ in examining the described loans?


b. The loans from the president represent a related-party transaction. What financial statement disclosures do you believe would be appropriate for the loans from the president?

(AICPA, adapted)

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