Podcast
Questions and Answers
What is the primary purpose of performing supplier statement reconciliations in an audit?
What is the primary purpose of performing supplier statement reconciliations in an audit?
- To verify the completeness of trade payables (correct)
- To evaluate the overall financial performance
- To assess the efficiency of purchasing practices
- To determine the accuracy of sales figures
Which procedure should an auditor follow if the client does not receive regular monthly statements from suppliers?
Which procedure should an auditor follow if the client does not receive regular monthly statements from suppliers?
- Contact suppliers to obtain the statements directly
- Prepare estimates of the outstanding payables
- Use external confirmation procedures (correct)
- Ignore the issue, as it is not significant
How should an auditor address cash-in-transit during supplier statement reconciliations?
How should an auditor address cash-in-transit during supplier statement reconciliations?
- Verify its appearance on the client's bank statements shortly after year-end (correct)
- Disregard it if not documented by the client
- Adjust the accounts payable balance immediately
- Confirm it is recorded in the supplier's records
What should be done when goods are invoiced by a supplier but not recorded by the client?
What should be done when goods are invoiced by a supplier but not recorded by the client?
In the case of disputed invoices due to refused goods, what should happen if the dispute is valid?
In the case of disputed invoices due to refused goods, what should happen if the dispute is valid?
What is a key concern for auditors regarding trade payables?
What is a key concern for auditors regarding trade payables?
Which procedure is used to determine if all payables are included in the financial statements?
Which procedure is used to determine if all payables are included in the financial statements?
What might indicate that a company is experiencing difficulty in making payments?
What might indicate that a company is experiencing difficulty in making payments?
Which of the following procedures is NOT typically performed to verify trade payables?
Which of the following procedures is NOT typically performed to verify trade payables?
Which document is crucial for tracing the existence of payables?
Which document is crucial for tracing the existence of payables?
How can contingent liabilities typically be identified during an audit?
How can contingent liabilities typically be identified during an audit?
What is the formula for calculating the payment period?
What is the formula for calculating the payment period?
What could be a consequence of an increasing payables period?
What could be a consequence of an increasing payables period?
Study Notes
Trade Payables Audit Procedures
- Auditors focus on the possible understatement of payables.
- To ensure completeness, auditors compare individual supplier balances to trade payables account balance in the general ledger and the financial statements. Any discrepancies require reconciliation.
- Reviewing correspondence with suppliers and board minutes may reveal disputed amounts, unpaid amounts, or contingent liabilities.
- Tracing from purchase orders to goods received notes (where applicable) to purchase invoices and credit entries in suppliers' accounts, and vice versa, ensures completeness and accurate cut-off.
- Tracing payments in the bank ledger account (before and after year-end) to suppliers' accounts and vice versa ensures accurate cut-off. Reviewing after-date payments may identify year-end liabilities that require accrual.
- The payment period, calculated as payables divided by purchases per day, indicates the company's payment behavior. A longer payment period might suggest delaying payments due to financial difficulties, but can also indicate a strategy to avoid cash discounts.
- Reconciliation of individual payables balances to suppliers' statements verifies completeness and accuracy.
- Suppliers' statement reconciliations are the main audit procedure for verifying the completeness of trade payables.
- Key reconciling items include:
- Cash-in-transit: Confirm payment on bank statements shortly after year-end.
- Goods-in-transit: Confirm goods received after year-end or, if received before year-end, that the invoice has been accrued.
- Disputed invoices: Confirm if disputes are valid and whether the invoice has been cancelled with a credit note from the supplier.
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Description
This quiz covers essential audit procedures related to trade payables. It focuses on ensuring completeness and accuracy by comparing supplier balances, reviewing correspondence, and tracing payments. Test your knowledge on how auditors manage and verify trade payables.
