Complete the enclosed assignment based on Chapter 14 material and upload your an

Question

Complete the enclosed assignment based on Chapter 14 material and upload your answer file here on or before December 14:

Leigh, CPA, is auditing Jensen Wholesaling Company's financial statements and is about to perform substantive audit procedures on Jensen's trade accounts payable balances. After obtaining an understanding of Jensen's internal control for accounts payable, Leigh assessed control risk at low. Leigh requested and received from Jensen a schedule of the trade accounts payable prepared using the trade accounts payable subsidiary ledger (voucher register.)

Required:

Describe the substantive audit procedures Leigh should apply to Jensen's trade accounts payable balances. Do not include procedures that would be applied only in the audit of related-party payables, amounts withheld from employees, and accrued expenses such as pensions and interest.

Explanation / Answer

General substative procedures for verifying payables:

Get a list of balances

Check arithmetical accuracy

Check total agrees to payables control account

Check a sample from supplier statements to listing (completeness)

Definitely choose nil and negative balances

Definitely choose major suppliers

Any differences to be reconciled by the client with explanations

To test completeness further:

1) Check all regular suppliers are in list
2) Compare to P/Y listing
3) Analytical Procedures: Trade payables to purchases ratio

The following questions would be adequate for testing Trade payables through substantive procedures ,

Payables:

1) Obtain a payables listing and compare total to purchases control account – tests for completeness  

2) For a sample of payables on the payables listing reconcile to respective supplier statements – tests for completeness, valuation and existence of payables

3) Compare payables days and payables turnover to prior year and industry data – tests for completeness and valuation of payables. – Would it also test for existence? [Yes]

4) for a sample of invoices recorded in the ledger trace back respective grn and purchase order – test for existence [Yes]

5) for a sample of purchase orders trace back respective grn and invoice – tests for completeness [Yes]

6) Review trade accounts payables for any debit balances and enquire with management if these should be reclassified within receivables – classification. [Yes]

Purchases / expenses:

1) for a sample of invoices recorded in the ledger trace back respective grn and purchase order – test for occurrence [Yes]

2) for a sample of purchase orders trace back respective grn and invoice – tests for completeness [Yes]

3) Perform analytical procedures comparing expenses as a % of sales with prior year results – tests for accuracy, occurrence and completeness [Yes]

4) recalculate mathematical accuracy for a sample of invoices – tests for accuracy [What calculations? These are carried out by your supplier]

5) For a sample of invoices received after year end ensure that these are included with end of year accruals – cut off [Yes]

6) Perform calculation of purchase returns as a % of sales or cost of sales and compare to prior year results – cut off [Yes]

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.