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MC Question 2

You are an audit senior of Viola & Co and are currently conducting the audit of Poppy Co for the year ended 30 June 20X6.

Materiality has been set at $50,000, and you are carrying out the detailed substantive testing on the year-end payables balance. The audit manager has emphasised that understatement of the trade payables balance is a significant audit risk.

Below is an extract from the list of supplier statements as at 30 June 20X6 held by the company and corresponding payables ledger balances at the same date along with some commentary on the noted differences:

Supplier Statement balance Payables ledger balance
$’000 $’000
Carnation Co 70 50
Lily Co 175 105

Carnation Co
The difference in the balance is due to an invoice which is under dispute due to faulty goods which were returned on 29 June 20X6.

Lily Co
The difference in the balance is due to the supplier statement showing an invoice dated 28 June 20X6 for $70,000 which was not recorded in the financial statements until after the year end. The payables clerk has advised the audit team that the invoice was not received until 2 July 20X6.

Which of the following audit procedures should be performed in relation to the balance with Lily Co to determine if the payables balance is understated?

A. Inspect the goods received note to determine when the goods were received
B. Inspect the purchase order to confirm it is dated before the year end
C. Review the post year-end cashbook for evidence of payment of the invoice
D. Send a confirmation request to Lily Co to confirm the outstanding balance

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