In 1956, Claudette Andre and her brothers took over a small manufacturing company started by their father as a sideline to their regular occupations. What began as a small informal partnership eventually became a successful business, and when the sons of two of the original partners entered the firm, the need to formalize the relationship became obvious to everyone concerned. After lengthy discussions among themselves and with their lawyers and public accountants, they decided to enter into a clearly defined partnership agreement rather than to incorporate. The partnership agreement was completed in 1971.

The firm has continued to operate successfully without internal difficulties since that time. Great care has been taken by the firm to keep the affairs of the partnership entity and those of the individual partners completely separate. For example, if a personal transaction is paid by the partnership, the partner's capital account is charged.

Your firm has audited and provided accounting and tax advice to the partnership since the 1960s. The individuals involved in the audit over the years have concluded that internal controls are excellent. No unusual difficulties have been encountered in any year.

Required

a. How much does the fact that the business is a partnership rather than a corporation affect the audit of the capital and repayment cycle? Be specific.

b. How do the tests of controls for each of the cycles other than the capital acquisition and repayment cycle differ when the client is a partnership rather than a corpora¬ tion?

c. How do the tests of details of balances for each of the cycles other than the capital acquisition and repayment cycle differ when the client is a partnership rather than a corporation?

(AICPA adapted)

19- 27 Xiel Limited is a Canadian manufacturing company with a June 30 fiscal year end. Until recently, the company had financed its operations with equity capital, supplemented by bank loans and other current indebtedness.

On August 31, 2001, the company issued $10 million of 20- year 8 1/2 percent first mortgage sinking fund bonds, secured by a specific charge against certain company properties. The bonds were distributed to the public through a group of investment dealers for a fee equalling 2 percent of the par value of the issue. The bonds were sold to the public at 99.

A trust company agreed to act as a trustee under the bond indenture and was also appointed transfer agent and interest-paying agent. The company paid fees totalling $25,000 for legal, audit, printing, and other costs in connection with the issue.

The company's auditor of long standing retired in March of 2002. You were then appointed auditor. You have reviewed the company's accounting system and internal controls but have not yet performed any further audit procedures.

Required List the audit procedures you should perform in order to form an opinion on the bond indebtedness and interest expense shown in the June 30, 2002, financial statements.