In order to vouch bought ledger the auditor obtain confirmations from creditors. The principal reason for the auditor to examine suppliers statements at balance sheet date is to obtain evidence that
Options:
| a) the supplier exist b) there are no unrecorded liabilities c) recorded purchases actually occurred d) to link creditors with cash book entries |
The Correct Answer Is:
b) there are no unrecorded liabilities
When an auditor examines supplier statements at the balance sheet date, the primary purpose is to obtain evidence that there are no unrecorded liabilities. This action aligns with the completeness assertion in auditing. Here’s a detailed explanation:
Correct Answer Explanation (b) – There are no unrecorded liabilities:
When an auditor reviews supplier statements, they aim to verify that all liabilities owed to suppliers have been accurately recorded in the company’s books. Unrecorded liabilities can significantly impact a company’s financial statements, leading to an understatement of liabilities and an overstatement of net income or equity.
By reconciling supplier statements with the company’s records, the auditor can ensure that all liabilities related to purchases or services rendered by suppliers are properly recognized in the financial statements. This process helps maintain the completeness and accuracy of the financial information presented to stakeholders.
When an auditor examines supplier statements at the balance sheet date, the focus on detecting unrecorded liabilities is crucial to ensure the completeness of financial reporting. Unrecorded liabilities, if overlooked, can distort the financial statements, leading to misrepresentation of a company’s financial position.
By reconciling supplier statements with the company’s records, auditors aim to identify any liabilities that might have been incurred but not yet recorded. This process involves cross-referencing invoices, purchase orders, and other documentation with the company’s books to validate that all transactions with suppliers are accurately reflected.
By confirming the absence of unrecorded liabilities, the auditor strengthens the integrity of the financial statements, providing stakeholders with a more accurate representation of the company’s financial health.
Why Other Answers Are Not Correct:
a) The supplier exists:
Confirming the existence of suppliers is indeed crucial in an audit, but it’s not the primary purpose of examining supplier statements at the balance sheet date. Auditors typically establish the existence of suppliers through various means such as reviewing contracts, correspondence, or physically visiting the supplier’s premises.
Supplier statements are used to verify the completeness of liabilities rather than solely confirming the existence of suppliers.
c) Recorded purchases actually occurred:
Verifying the occurrence of recorded purchases is essential to ensure the accuracy of financial statements.
However, examining supplier statements specifically at the balance sheet date primarily aims to ensure that all liabilities related to purchases or services rendered by suppliers have been accurately recorded, rather than solely focusing on validating the occurrence of purchases.
d) To link creditors with cash book entries:
Reconciling creditors with cash book entries is a part of the audit process, ensuring that cash disbursements align with recorded liabilities. However, while it is important to link creditors with cash book entries to ensure accuracy, it is not the primary objective when examining supplier statements at the balance sheet date.
The primary focus at this stage is to confirm the completeness of liabilities and identify any potential unrecorded obligations to suppliers.
In summary, while these aspects confirming the existence of suppliers, verifying the occurrence of recorded purchases, and linking creditors with cash book entries are essential components of the audit process, they are not the primary objectives when examining supplier statements at the balance sheet date.
The primary aim during this stage is to ensure completeness by verifying that all liabilities owed to suppliers have been accurately recorded in the financial statements, specifically focusing on detecting any potential unrecorded liabilities.
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