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doubt 1: (audit risk) “with regards to the loan taken out, Kangaroo may have given the bank a charge over its assets as security for the loan.
There is a risk that the disclosure of any security given is not complete.”ma’am when we give a security as a collateral we don’t have to pay any charge related to the collateral, as far as my understanding is concerned, so what sort of charge are they talking about here?
doubt 2: (audit response) “The loan correspondence should be reviewed to ascertain whether any security has been given, and this bank should be circularised as part of the bank confirmation process.”
maam i don’t understand the part where the kit talks about bank being circularised as a part of bank confirmation process, what does it mean?
1 – this is assumed knowledge of prior LW studies. “Charge” in this context does not mean so payment/expense (so not like a “charge for parking” – a payment – or “depreciation charge” – which is an expense but not a payment”. A charge over an asset refers to a legal claim. In the case of a fixed charge (which means over a specific asset), the lender can take possession of the asset and sell it to discharge the debt. A mortgage refers to the specific charge that arises when a bank lends money to buy a property.
2 – “circularised” is an old term that was used particularly with reference to the confirmation of debtors. It implies sending a letter to a large number of people (i.e. “a circular”). The ISA term now is “external confirmation request”. This is a much better description for requesting confirmation from a bank as an audit client is not going to have a large number of banks – it have only one!
thank you so much maam for replying.
And apologies for asking such dumb questions. But really I learn so much from your responses.
You are hands down “The Guru” for Audit!
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