$16-10$ Relating Errors, Frauds, Audit Procedures, and Assertions in Substantive Tests of Long$-$Term Debt

Following are errors, frauds, or other circumstances that an auditor might encounter as a result of applying audit tests to long$-$term debt as of the balance sheet date.

$1.$ Detailed long$-$term debt records may not be accurate.

$2.$ All debt instruments are held by banks.

$3.$ There is no documentation supporting a bond indenture.

$4.$ Proceeds from the bond issuance have been expended.

$5.$ Various debt instruments required interest payments on the last day of all but two months.

Required: For each, indicate $($a$)$ a specific substantive test or tests that might address the error, fraud, or circumstance and $($b$)$ the financial statement assertion addressed by each test.

$16-11$ Internal Controls over Investments, Debt, and Capital Stock

Ronald Ondeyko, CPA, is considering LaSalle Company$$s internal controls over investments, long$-$term debt, and capital stock. System documentation was accomplished with a questionnaire and a narrative memorandum and, in conjunction with a transaction walkthrough, revealed the following potential deficiencies in internal control.

a$.$ The historical cost of all long$-$term debt exceeds company policies for debt$-$to$-$equity ratios.

b$.$ The company entered into a long$-$term debt agreement requiring a $2$ to $1$ current ratio at year end, yet the current ratio when the agreement was signed was approximately $1\mathrm{.}5$ to $1.$

c$.$ Internally held securities have been misplaced occasionally, though in all cases the securities were recovered.

d$.$ In an open letter to the board of directors, a group of shareholders criticized the company for investing in a domestic corporation alleged to have violated human rights in a foreign country.

e$.$ Signatures on investment authorizations vary from the chairman of the board$$s investment committee to the treasurer and controller.

Required: For each potential deficiency, indicate a control procedure or procedures that management could implement to reduce the likelihood of errors or frauds.