- 5 Marks
Question
Asogli has been in existence since 2005, operating a car repair and servicing business. The car service solutions offered to its clients are diagnosis, ECU programming, key programming, body works, electrical works, and air conditioning. Its year-end was 31 October 2020. You are the senior audit manager of KK and Associates, the Auditor of Asogli. The audit is due to commence, and Asogli intends to sign the audit report on 20 November 2020.
Your attention has been drawn to the following matter by the Partner-in-charge:
- Cut-Off Error:
Asogli’s Finance Director has notified you that an error occurred in closing the purchase ledger at the year-end. Rather than closing on 31 October, it accidentally closed one week earlier on 24 October. All purchase invoices received between 25 October and the year-end have been posted to the 2021 year-end purchase ledger.
Required: Describe substantive procedures you would perform to obtain sufficient and appropriate audit evidence in relation to the above. (5 marks)
Answer
- Review the Purchase Ledger: Compare the purchase ledger entries before and after 24 October to ensure that transactions have been recorded in the correct accounting period.
- Reconcile Supplier Statements: Obtain supplier statements and reconcile them with the purchase ledger. Focus on transactions recorded after 24 October to ensure all relevant purchases are accounted for in the correct period.
- Examine Post-Year-End Payments: Review payments made after 31 October to identify any payments that relate to goods received before the year-end but were incorrectly posted in the next period.
- Test Cut-Off: Select a sample of purchase invoices received between 24 October and 31 October, and trace them to the relevant purchase ledger entries to ensure they have been recorded in the correct period.
- Inquiry of Management: Discuss the nature and impact of the cut-off error with management to understand any potential adjustments that may be needed in the financial statements.
- Tags: Audit evidence, Cut-Off Errors, Substantive Procedures
- Level: Level 3
- Topic: Audit evidence, Professional responsibility and liability
- Series: APR 2022
- Uploader: Dotse