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; Check suppliers‘ statements to the balances on the purchases ledger

  • The work I will perform in checking supplier‘s statements to the balances on the purchase ledger will include:
  •  I will assess the system of control in the purchases system and its credibility. This will be based on the results of my tests of control, other investigations an my experience in previous years. Where the purchases system is reliable, I will check fewer items than if it is unreliable. If I find discrepancies in my audit tests, I will increase the sample of items I check. I will check fewer suppliers‘ statements to the purchase ledger balances if the company perform these checks and corrects discrepancies;
  •  Generally I will check a larger proportion of suppliers where the balances are large, or where there are a large number of transactions. Where there is no supplier‘s statements for one of these important accounts, I will either contact the supplier to confirm the balance, or ask for a statement at the year end;
  •  Where the balance on the supplier‘s statement is the same as the purchase ledger balance, I will record this in my working papers and carry out no further work;
  •  Where there are differences, these could have resulted from either goods in transit, cash in transit or other differences;
  •  Goods in transit are invoices on the supplier‘s statement, which are not on the client‘s purchases ledger. If these invoices have been included in the accruals, I may perform no further audit tests. However, for large value items, I will check the goods received note (GRN) to ensure they were received before the year-end. If there is no purchase accrual, I will check the date on the GRN. If the date on the GRN is after the year-end, the treatment is correct. However, if it is before the year end there is a cut off error, and management should be advised to include the value of these goods in the current years closing stock and accrual the amount payable;
  •  For cash in transit, I could check to the next month‘s supplier‘s statement that the cheque was on the supplier‘s sales ledger just before the year-end. An alternative procedure is to check to the bank statement the date the cheque is cleared by the bank after the year-end. If there is a significant delay in clearing the cheque, this could indicate that the cheque might have been sent to the supplier after year- end. If this has been happening, the value of these cheques should be added to the year end bank balance and added to creditors at the year end since the payment was made after the year end;
  •  For other differences, if they are small they can be ignored. However, if they are significant I will discuss them with the client. The year end accounts should include appropriate provision to allow for such differences;
  •  Based on these tests, I will assess whether they provide sufficient evidence that the trade creditors and purchase accruals are correctly stated at the year-end.



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