Because of the small size of the company and the limited number of accounting personnel, Dry Goods Wholesale Company initially records all acquisitions of goods and services at the time cash disbursements are made. At the end of each quarter, when financial statements for internal purposes are prepared, accounts payable are recorded by adjusting journal entries. The entries are reversed at the beginning of the next period. Except for the lack of accounts payable or voucher journal, controls over acquisitions are excellent for a small company. (There are adequate renumbered documents for all acquisitions, proper approvals, and adequate internal verification where appropriate.) Before the auditor arrives for the year-end audit, the bookkeeper prepares adjusting entries to record accounts payable as of the balance sheet date. He prepares a list of all outstanding balances, by vendor, and gives it to the auditor. All vendors' invoices supporting the list are retained in a separate file for the auditor's use.

During the current year, the accounts payable balance has increased dramatically because of a severe cash shortage. (The cash shortage apparently arose from expansion of inventory and facilities rather than lack of sales.) Many accounts have remained unpaid for several months, and the client is being pressured by several vendors to pay the bills. Because the company had a relatively profitable year, management is anxious to complete the audit as early as possible so that the audited statements can be used to obtain a large bank loan.

Required

a. Explain how the lack of accounts payable or vouchers journal will affect the auditor's test of transactions for acquisitions and payments.

b. What sampling unit should be used in performing tests of expenses and accounts payable?

c. Assuming no errors are discovered in the auditor's tests of transactions for acquisitions and payments, how will that result affect the verification of accounts payable?

d. Discuss the reasonableness of the client's request for an early completion of the audit, and describe the implications of the request from the auditor's point of view.

e. List the audit procedures that should be performed in the year-end audit of accounts payable to meet the cutoff objective.

f. State your opinion about whether it is possible to conduct an adequate audit in these circumstances.