Loan and guarantee
A loan provides funds subject to repayment terms, while a guarantee is an undertaking to meet another party’s obligation if specified conditions occur. The accounting, disclosure and audit evidence depend on the arrangement and applicable standards. Loans or guarantees involving an auditor and client also raise separate ethical issues.
Worked example
A company guarantees an associate’s bank loan; the auditor inspects the agreement and evaluates the applicable accounting and disclosures.
Common mistake
Do not assume a guarantee and a loan are the same contract or automatically apply the same accounting treatment.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AA | Supporting | September 2026–June 2027 |