Question

As the auditor of Maisha Clouds, a software firm in Colchester, Simon Accountants is concerned about the liability accounts of the company. Following some unusual changes in the liability accounts, the amount of total liability has decreased by 12% compared to that in the previous year. Yet the company has experienced a growth in terms of scope and scale of operations. The auditors are somewhat sceptical and wish to check whether there are any unrecorded liabilities.
	Required:
	a.	Discuss FIVE audit procedures for unrecorded liabilities. Support your answer with example(s).

Answer 1

Audit Procedure for Unrecorded Liabilities

These are the various procedure to be followed towards the unrecorded liabilities as impact an serious implication on the business finanacial statements.

- Vouching a sample of the cash disbursement which is recorded just after year end to receivieng reports and also check the vendor invoices for full testing and report accordingly.

- if the confirmation are taken for small and zero balances be sampled as well as large balances

Example:

- If order are placed with a vendor on a consisitent basis ,a confirmation should be sent the vendor regardless of the balance due at year end  .

- A voucher is not prepared until recuisition, receiving report , and seller invoice are reconcilled with the purchase order and its the duty f the auditor to search open files for unmatched document

- Purchases cut off test to determine goods for which title has passed or are not passed appropriately and FOB shipping point and FOB destination are cretically to be tested