You are the audit senior in charge of the audit of Blackburn Ltd., and you are auditing the company’s trade payables at December 31, 2023. A junior member of the audit team has been checking suppliers’ statements against the balances in the accounts payable sub-ledger. He is unable to reconcile a material balance relating to Whitebone Ltd., and has asked for your help and suggestions on the audit work that should be carried out on the differences. The balance of Whitebone in Blackburn’s sub-ledger is shown below.

Whitebone’s terms of trade with Blackburn allow a 2-percent cash discount on invoices where Whitebone receives a cheque from the customer by the end of the month following the date of the invoice (that is, a 2-percent discount will be given on November invoices paid by December 31).
On Blackburn’s sub-ledger, under “Status,” the cash and discount marked “Alloc. 1” pay invoices marked “Paid 1” (similarly for “Alloc. 2” and “Paid 2”). Blackburn’s receiving department checks the goods when they arrive and issues a receiving report. A copy of the report is sent to the accounts payable department.

Required

a. Prepare a reconciliation of the balance on Blackburn’s payable sub-ledger to the balance on Whitebone’s supplier’s statement. (Hint: Look for errors and omissions.)

b. Describe the audit work you will carry out on each of the reconciling items you have determined in your answer to part

(a) to determine the balance that should be included in the financial statements.

c. In relation to verifying trade creditors:
i. Consider the basis you will use for selecting suppliers’ statements to check against the balances on the purchase ledger.
ii. Describe what action you will take if you find there is no supplier’s statement for a material balance on the purchase ledger.

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Date April 10 April 18 April 23 May 4 May 15 May 26 May 31 June 14 June 21 June 30 June 30 Type Invoice Invoice Invoice Invoice Invoice Invoice Payment Discount Invoice Invoice Payment Discount Balance Supplier: Whitebone Ltd. Reference Status 6004 Paid 1 6042 Paid 1 Paid 1 Paid 2 Paid 2 Paid 2 Alloc. 1 Alloc. 1 6057 6080 6107 6154 Cheque 6285 6328 Cheque Alloc. 2 Alloc. 2 Dr 6,163 126 6,005 123 Cr 2,130 1,525 2,634 3,572 1,632 924 2,156 3,824 Balance 5,980