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Payables:
Squash Co. has a. history of financing short term working capital by delaying paying suppliers. During the year 2 major suppliers withdrew credit and have started payment on delivery terms. This has had a difficult effect on Squash cash flow situation. Having met the terms for several months by extending credit terms with other suppliers further, the purchase director is negotiating with the suppliers to reinstate credit terms.Substantive procedure:
1.Review the board minutes of meetings regarding the payment to the Suppliers and review the cash flow and discuss with the management their plan of paying the supplier and what’s their plan if the supplier does not reinstate the credit terms.
2.Review bank statement and cash book if regular money is going out from the account as it is on the cash on delivery and agree the amount with the GRN to ensure that same has been paid.
3.Obtain the supplier statement and reconcile with the payable ledger, select the sample of nil balances and high balances and send circulation, if the balance matches then no further work required, if balance does not match send circulation and obtain the explanation from the management why this have not been paid.These 3 procedures are not mentioned in answer in BPP kit, Can these procedure be a part of the answer?
How do I check my answer is right or not if the answer is not mentioned in answer sheet but according to me that can be a right procedure?Substantive procedures had to be considered in the specific context of the “matter” identified – i.e. completeness (in (a)).
Looking at each of your points:
1. Has nothing to do with completeness assertion – therefore irrelevant.
2. Again doesn’t address completeness.
3. The answer references supplier statement reconciliations (which the client should be doing as an internal control). The auditor would not normally “circularise” creditors – and not in the same way as debtors. If (rarely) suppliers are not sending statements or the auditor has good reason for suspicion about the statements which the client reconciles the auditor would request a statement from suppliers (but not send balances to be confirmed by the suppliers – as for customers – because the test is for completeness (understatement) not existence (overstatement). So there would be no “matching” of nil balances.So in answer to your question – if the point you make is not in the model answer you have to consider its relevance.
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