You are the audit senior in charge of the audit of Blackburn Ltd., and you are auditing the company?s trade creditors at December 31, 2020. 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.

Supplier: Whitebone Ltd.

Below are the details on Whitebone?s suppliers? statement.Customer: Blackburn Ltd.

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 statement reconciling 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.

Transcribed Image Text:

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