#93- Auditing Creditors II

In addition, we should perform purchase cut-off test to address the potential risk of misstatement arising from improper cut-off.

As an auditor, we can examine the Goods Received Notes ("GRN") near year-end and after year-end to check that Goods Received Notes details matached with the supplier's delivery order details and supplier's invoices details.

For instance, Auditor Arthur is auditing Company E (whose year end is 30 June 2010) creditor's balance. As part of cut-off testing procedure, Auditor Arthur requested the details of Goods Received Notes near year-end and after year-end. And noted the following sample:

"Goods received notes was generated on 01 July 2010, however, supplier's invoices, supplier's DO indicated the date of 30 June 2010. Further investigation revealed that, supplier generated their internal documents on 30 June 2010, but only delivered the goods to Company E in 01 July 2010. As such, there's no exceptions for Company E"

Cut-off testing is deemed as a compulsory procedure in auditing creditors' balances.

Hewlett Packard CEO Mark Hurd- False Expense Report

Right now, most of the medias is covering the news about Mark Hurd, CEO of Hewlett Packard's resignation. Mark Hurd, CEO of HP, following a sexual harrasment investigation has admitted he had a "close personal relationship" with a former marketing contractor.

HP said that althorugh there was no violation of its sexual harassment policy, Mard Hurd violated the company's standards of business conduct by submitting inaccurate expense reports that covered his relationship with the contractor.

HP further claims that Mark Hurd had "...failed to disclose a close personal relationship he had with the contractor that constituted a conflict of interest, failed to maintain accurate expense reports, and misused company assets. Each of these constituted a violation of HP's Standards of Business Conduct..."

It is evidenced that HP has a strong corporate governance that guide / regulate the behaviour of its mangement, employees, or every single on within the firm.

#92- Auditing Creditors

One of the procedures required to audit trade creditors account is to audit the creditors' statement received from the audit client's suppliers (i.e. external audit evidence).

In normal business circumstances, suppliers will send their monthly Statement of Account to their customers to inform the customers in relation to the outstanding balances. Hence, our audit client will , most likely, receive statement of account from the suppliers.

As part of audit procedure, we can check the suppliers' statement (received by our audit customers) against the creditors' balance recorded in their book. Discrepancies need to be investigated. Statement of account served as an external confirmation to check if our audit client's book has been prepared properly.

However, there are suppliers who do not have practices of sending out Statement of Account to their customers. In this instance, we can send external audit confirmation to the suppliers to confirm outstanding balances.

#91- No depreciation charge on asset held for sale

This is to confirm that if a property is classified as asset held for sale, no depreciation is to be recorded.

To illustrate, Company ABC entered into Sales & Purchase agreement with 3rd party to dispose one of its property. The Sales & Purchase agreement may take months to complete. In this instance, Company ABC re-classified the property from Property, Plant & Equipment to Asset held for Sale upon entering the Sales & Purchase agreement.

Asset held for sale is de-recognised from the balance sheet upon the completion of the Sales & Purchase agreement.