The following information was extracted from the draft financial statement of Hanna Wholesale Co as at 30 April 2019:

$

Trade payables 509,200

Purchase accruals 27,050

536,250

Sundry payables and accruals 59,480

Current liabilities 595,730

The annual revenue for Hanna Wholesale Co is approximately $3.5m and profit before tax is $190,000. The age of payables at 30 April 2019 is 3.4months, and this is similar to the previous year. Sundry payables and accruals consist of mainly wages accruals (income tax and other deductions) and GCT liability of $20,000.

You are required to:

1. Consider and discuss the reasons why:
2. It is more likely that payables will be understated instead of overstated
3. It is difficult for auditors to ensure that payables are not understated (12 marks)

1. Describe the audit work you will perform to verify trade payables and purchase accruals. Your answer should include:
2. Test using supplier's statements
3. Why most auditors do not carry out a payables circularization, and the circumstances when a payables circularization should be carried out
4. Audit tests which are designed to detect understatement of payables

(15 marks)

1. Describe the audit procedures you will perform to verify sundry payables and accruals, including the GCT liability. (10 marks)

1. ISA620, Using the work of an auditor's expert, provides guidance to auditors on relying on the work carried out by an auditor's expert.
2. Outline four examples of audit evidence that might be obtained from the use of an auditor's expert. (4 marks)
3. Describe the factors that must be considered by the auditor when evaluating the work carried out by an expert. (4 marks)
4. Explain the actions the auditor should take if they conclude that the result of the expert's work does not provide sufficient appropriate audit evidence or if the results are inconsistent with other audit evidence. (4 marks)

1. Explain two ways in which you could use computer programs to assist in the verification of purchase and purchase accruals at year end. (4 marks)
2. Identify two limitations with the use of computer programs in the verification process (2 marks)

1. Describe the objectives and principles of using test data. (5 marks)
2. Comment on the areas where it can be of most use in the audit of Hanna Wholesale Co. (2 marks)
3. Explain the difficulties of using test data in the audit. (4 marks)

1. What recommendations would you make to Hanna Wholesale Co. based on your findings? (10 marks)

1. An understanding of internal control assists the auditor in identifying potential misstatements and factors that affect the risks of material misstatements and in designing the nature, timing and extent of further audit procedures. One method of recording an audit client's accounting and internal control system is using narrative notes.
2. Explain the limitations of internal control systems. (4 marks)
3. Describe two advantages and two disadvantages of using narrative notes to document the accounting and control systems of Hanna Wholesale Co. (5 marks)
4. Discuss two alternative methods of documenting accounting and control systems. (10 marks)

Explain the purpose and implications of the management letter in an audit.