Your firm is the auditor of Shah Engineering Ltd, and you have been asked to suggest
the audit work you will carry out in verifying trade creditors and purchase accruals at
the company’s year-end of 31 December 2003. You attended the stock take at the
The Company operates from a single site and all raw materials for production are
received by the goods inwards department. When the materials are received they are
checked for quantity and quality to the delivery note and purchase order, and a
multi—part goods received note is made out and signed by the storekeeper. If there
are any problems with the raw materials, a discrepancy note is raised which gives
details of the problems (e.g., incorrect quantities or faulty materials)
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;
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:
a) Check suppliers’ statements to the balances on the purchases ledger; (8
b) Verify that purchases cut-off has been correctly carried out at the year end (5
c) Ensure that sundry creditors and accruals are correctly stated; (7 marks)