You are the audit senior in charge of the audit of Black Ltd, and you are auditing the company's trade creditors at 30 June 2015. A junior member of the audit team has been checking suppliers'

statements against the balances in the purchases ledger. He is unable to reconcile a material balance relating to White Ltd, and has asked for your help and suggestions on the audit work that should be carried out on the differences. The balance of White Ltd in Black's purchases ledger is shown opposite.

White's terms of trade with Black allow a 2% cash discount on invoices where White receives a cheque from the customer by the end of the month following the date of the invoice (i.e. a 2% discount will be given on May invoices paid by 30 June).

On Black's purchase ledger, under ‘Status’, the cash and discount marked ‘Alloc. 1’ pay invoices marked ‘Paid 1’ (similarly for ‘Alloc. 2’ and ‘Paid 2’). Black's receiving department checks the goods when they arrive and issues a receiving report. A copy of the report is sent to the purchases accounting department.

Required

a. Prepare a statement reconciling the balance on Black's purchases ledger to the balance on White's supplier's statement.

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

Transcribed Image Text:

Supplier: White Ltd Date Type Reference Status Dr Cr Balance 10.4 Invoice 6004 Paid 1 2130 18.4 Invoice 6042 Paid 1 1525 23.4 Invoice 6057 Paid 1 2634 4.5 Invoice 6080 Paid 2 3572 15.5 Invoice 6107 Paid 2 1632 26.5 Invoice 6154 Paid 2 924 31.5 Payment Cheque Alloc. 1 6163 Discount Alloc. 1 126 14.6 Invoice 6285 2156 21.6 Invoice 6328 3824 30.6 Payment Cheque Alloc. 2 6005 Discount Alloc. 2 123 30.6 Balance 5980 Below are the details on White's suppliers' statement.