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CA Intermediate · Auditing and Ethics · Audit of Items of Financial Statements

In auditing the liabilities of Neelkanth Foods Ltd, the auditor wants assurance that all purchases of goods received before year-end are recorded as trade payables (completeness). Which procedure is most appropriate?

The auditor should examine goods received notes near year-end against purchase records and payables, and review supplier statement reconciliations and payments made after year-end. Liabilities carry a risk of understatement, so tests must start from independent records and move to the books, not from recorded balances.

  1. AVouch a sample of recorded payables to supplier invoices
  2. BExamine goods received notes near year-end and compare them with purchase records and payables, and review supplier statement reconciliations and post year-end payments for unrecorded liabilitiesCorrect
  3. CConfirm the bank balance with the bank
  4. DRecompute depreciation on plant and machinery

Explanation

For liabilities, the main risk is understatement, so the auditor tests from external or independent records (goods received notes, supplier statements, subsequent payments) towards the books. Vouching recorded payables back to invoices tests the existence of what is already recorded, not completeness. Bank confirmation and depreciation recomputation are unrelated to payables completeness.

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