19) Substantives: Trade Payables

Question 1

why is the TP balance high-risk?

Answer 1

as companies are incentivized to understate it to reduce their liabilities

Question 2

which documents are used for TP?

Answer 2

• creditor’s listing
• supplier confirmation statement
• creditors statement
• board meeting minutes
• bank statements

Question 3

why are expenses at high risk of misstatement?

Answer 3

as companies are incentivized to understate it to increase their expenses for tax purposes (higher deductions, lower tax payable)

Question 4

what documents do we use for expenses?

Answer 4

• delivery notes
• general ledger

Question 5

what accounting principles must we focus on when looking at inventory?

Answer 5

• cost components
• how inv is recognised
• OH / labour allocation

Question 6

what are some of the audit risks for inventory?

Answer 6

• stock count not performed
• not in accordance with instructions
• not done accurately
• inv is damaged/obs at y/e

Question 7

what are the relevant documents for inventory?

Answer 7

• delivery notes
• bill of lading
• count sheets
• supplier invoice
• inventory listing
• purchases journal
• employee timesheets
• job cards

Question 8

which SPs do we use for raw materials?

Answer 8

same as purchases

Question 9

what SP can we perform on the stock count?

Answer 9

attend y/e inventory stock count:
- enquire w mgmt about process
- inspect a copy of instructions to corroborate
- observe process and confirm it followed instructions
- reperform on sample basis in line with instructions

Question 10

what SP can we perform when checking physical inventory?

Answer 10

select a sample from the listing and:
- physically inspect to check if exist
- inspect for signs of damage