Case Study, Auditing Practice- Unrecorded Liabilities

Introduction

This case study on Illusion Shoppe is basically regarding unrecorded liabilities and it does test the usage of assertions, mainly on completeness.

Unpaid vouchers provide the detail for the total amount reported as vouchers payable or accounts payable. An invoice from a vendor is the bill that is received by the purchaser of goods or services from an outside supplier. An unrecorded liability is nothing more than a liability item that does not currently appear in a financial statement, it may be a factor that just has not become necessary to report up to that point. Competent financial auditing seeks to keep the amount of unrecorded liabilities within a reasonable limit, mainly line items that are either unforeseen or are not meant to be included in financial statements until they can be accounted for in an existing classification.

In order to discuss the case study, we have looked into the auditing plan procedures and it would be discussed throughout the illustration. Basically this case is on how we have implemented the approach.

Audit Plan for the Audit of Unrecorded Liabilities

First, in order to determine for unrecorded liabilities, the auditor has to acquire a trial balance of recorded accounts payable as at the end of the year and make sure the reports are received to ensure goods are received in the current year. From receiving report can provides a lot of evidences about the receipt of materials by the business entity. For example, purchase order number, amount of material received, and condition of material received. The documentation of receiving report basically included receiving date and time and it completed by the receiving department.

Second, auditor requires sending confirmation to creditors to confirm the amount outstanding as at the year end. The purpose is to search for unrecorded liabilities should emphasize small and zero balances as well as whom the company has done significant business, especially for regular vendors....