The following is a copy of the auditor's working paper relating to the search for accounts payable cut-off testing for the client Elemental Ltd.

CLIENT:Elemental Ltd

Period end:31/12/2019

Currency/unit:$000

E04- ACCOUNTS PAYABLE CUT-OFF

Reference

E04

Supplier Name

Invoice Number

Date in AP Ledger

Amount

TM/Ref

Delivery date / date of service

TM/Ref

Recorded in the proper period? Yes/No

Comments

Transactions recorded before year-end

TRU Ltd.

T100328

30/12/2019

(8 900)

SL

30/12/2019

Yes

Transactions recorded after year-end

Links Ltd

L22257

06/01/2020

(11 000)

SL

30/12/2019

No

See below

Key to audit tick marks:

Agrees to delivery note / date of service as mentioned on the invoice SL Agrees to subsidiary ledger

Comments:

This transaction was recorded in the wrong period and not included in the accounts payable as of Year 2019. We expanded our test by completing the following: test of details of transactions recorded from 01/01/2020 to 10/01/2020. This error seems to be isolated as no additional errors were detected. The error is posted to our summary of audit differences.

Required:

1.Why does an auditor test accounts payable cut-off? Discuss whether the test has any implications for the income statement? (2 marks)

2.Explain the error found by the auditor in the second transaction on the working paper. (2 marks)

Why has the auditor done additional testing (see the comments section)?