The following two tests were carried out on the accounts payable at Gardens Nursing Home: 1: A number of suppliers were selected from the list of trade creditors at year-end and balances traced to supplier invoices and goods received notes to ensure goods were received prior to the year-end. For two creditors out of 15 tested the balance was only marginally overstated. Audit conclusion: Accepted as no material errors located. 2: Selected a number of suppliers’ invoices and checked that the pricing and discount terms have been reviewed and authorized by the purchase manager. Three out of 20 invoices tested had not been authorized and incorrect discounts were recorded for these invoices. A follow-up of the three samples with deviations did not highlight a pattern or specific reason for the errors. Audit conclusion: Accepted as the errors in discounts claimed were immaterial. Required: For each of the test results for Gardens Nursing Home: (a) Identify whether this is a test of controls or a substantive test of detail. (b) Determine the key assertion addressed by the test procedure. (c) Explain why the conclusion reached is appropriate or inappropriate. (d) Outline the key additional procedure that you believe needs to be performed.
The following two tests were carried out on the accounts payable at Gardens Nursing Home:
1: A number of suppliers were selected from the list of trade creditors at year-end and balances traced to supplier invoices and goods received notes to ensure goods were received prior to the year-end. For two creditors out of 15 tested the balance was only marginally overstated.
Audit conclusion: Accepted as no material errors located.
2: Selected a number of suppliers’ invoices and checked that the pricing and discount terms have been reviewed and authorized by the purchase manager. Three out of 20 invoices tested had not been authorized and incorrect discounts were recorded for these invoices. A follow-up of the three samples with deviations did not highlight a pattern or specific reason for the errors.
Audit conclusion: Accepted as the errors in discounts claimed were immaterial. Required:
For each of the test results for Gardens Nursing Home:
(a) Identify whether this is a test of controls or a substantive test of detail. (b) Determine the key assertion addressed by the test procedure.
(c) Explain why the conclusion reached is appropriate or inappropriate. (d) Outline the key additional procedure that you believe needs to be performed.
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