The Mica Corporation has lending agreement with the First Bank of Madison. The lending agreement is for the purchase of inventory throughout the year. As part of the lending agreement, Mica cannot obtain loans from any other source.

During the audit, you notice a very large accounts payable account. The account is linked to a large supplier of inventory to Mica. The account charges interest on the outstanding balance. Mica includes the interest payments to the supplier in the cost of the inventory. The interest payments being applied to the inventory account are quantitatively immaterial.

Required:

Discuss the audit consequences of the above situation