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Taylor, CPA, is engaged in the audit of Rex Wholesaling for

Taylor, CPA, is engaged in the audit of Rex Wholesaling for the year ended December 31. Taylor obtained an understanding of internal control relating to the purchasing, receiving, trade accounts payable, and cash disbursement cycles and has decided not to proceed with tests of controls. Based upon analytical procedures, Taylor believe that the trade accounts payable on the balance sheet as of December 31 may be understated.
Taylor requested and obtained a client-prepared trade accounts payable schedule listing the total amount owed to each vendor.

What additional substantive audit procedures should Taylor apply in examining the trade accounts payable?

Solution Preview

This is how I would handle this problem, from an auditor's perspective:

Taylor requested and obtained a client-prepared trade accounts payable schedule that lists the total amount owed to each vendor, and should also perform several substantive tests for the trade accounts payable. Several of the tests that the auditor should perform include the following:

(1) He should tie in the general ledger accounts payable listing to the external documentation from the client. The two should have no discrepancies.

(2) The auditor should examine the vendor statements to ensure that they match the client prepared trade accounts payable ...

Solution Summary

Taylor, CPA, is engaged in the audit of Rex Wholesaling for the year ended December 31. Taylor obtained an understanding of internal control relating to the purchasing, receiving, trade accounts payable, and cash disbursement cycles and has decided not to proceed with tests of controls. Based upon analytical procedures, Taylor believe that the trade accounts payable on the balance sheet as of December 31 may be understated.
Taylor requested and obtained a client-prepared trade accounts payable schedule listing the total amount owed to each vendor.

What additional substantive audit procedures should Taylor apply in examining the trade accounts payable?

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