The purchase accounting department receive the purchase invoice, check them to the purchase order and goods received note and post them to the purchase ledger. At the end of each month, payments are made to suppliers. The purchase ledger is maintained on a microcomputer. The main sundry creditors and accruals at the year-end include: a) Wages accruals and PAYE; b) VAT; c) Interest on loans overdrafts, telephone and electricity. Most employees‘ wages are paid weekly in arrears. You are required to describe in detail the audit work you will carry out to; Ensure that sundry creditors and accruals are correctly stated

I will perform the following work in checking sundry creditors and accruals

  • I will assess the level of accruals and the system of control. If the company‘s system of determining accruals is good, I will perform less work than if the controls are weak;
  •  I will compare this year‘s accruals with the previous year. I will investigate any significant variances e.g. where there was an accrual in the previous year but none this year;
  •  The wages accrual will be checked to the payroll, the accrual should be equivalent to one weeks gross wages;
  •  The PAYE should be checked back to the payroll. The accrual should equal the December PAYE payable. I will check to the cash book that the accrual is equal to the payment made to the government in January 2004;
  •  The VAT creditor will be checked as being the net of out put VAT (VAT on sales) and Input VAT (VAT on purchases). This should be checked against the VAT paid over to the government in January 2004;
  •  Accrued interest on the bank loan and overdraft will be checked to be bank confirmation received. For loans, the accrued interest should be the product of the amount outstanding, the current interest rate and the time since the last charge;
  •  Other accruals will be checked to invoices received after the year end;
  •  I will consider whether there are any circumstances which have arisen during the year which may result in new accruals and I will check if these have been made.

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