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?
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?
How should an auditor address cash-in-transit during supplier statement reconciliations?
How should an auditor address cash-in-transit during supplier statement reconciliations?
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?
Signup and view all the answers
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?
Signup and view all the answers
What is a key concern for auditors regarding trade payables?
What is a key concern for auditors regarding trade payables?
Signup and view all the answers
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?
Signup and view all the answers
What might indicate that a company is experiencing difficulty in making payments?
What might indicate that a company is experiencing difficulty in making payments?
Signup and view all the answers
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?
Signup and view all the answers
Which document is crucial for tracing the existence of payables?
Which document is crucial for tracing the existence of payables?
Signup and view all the answers
How can contingent liabilities typically be identified during an audit?
How can contingent liabilities typically be identified during an audit?
Signup and view all the answers
What is the formula for calculating the payment period?
What is the formula for calculating the payment period?
Signup and view all the answers
What could be a consequence of an increasing payables period?
What could be a consequence of an increasing payables period?
Signup and view all the answers
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.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
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.
