Guidelines for auditors in Verification of Creditors
1. The postings in purchase ledger are to be checked by verifying the books of prime entry. The postings may be checked for part of a year.
2. The balances shown in creditors’ schedule prepared by the management are to be verified with the statement of accounts obtained from the creditors.
3. The credit entries relating to discounts, returns, rebates etc., made in the suppliers’ accounts are to be verified with the statement of accounts obtained from them.
4. The ledger accounts are also to be verified with Goods Inward Book to confirm that all goods received before the close of the year are duly accounted for.
5. The Return Outwards Book is to be compared with the ledger accounts and confirm that all the returns are supported by the Credit notes of the suppliers.
6. The purchase invoices relating to the period immediately following the close of the year, are to be verified to ensure that they do not relate to the period under audit.
7. In case of control accounts, the balances appearing in the Schedule of Creditors as on the date of Balance sheet are to be compared with the balances in the Bought ledger account in the General Ledger.
8. The balances outstanding for a long period is to be probed and reasons for the same are to be found out.
9. Percentage of Gross profits of the previous years is to be compared with the gross profits of the year under audit and if the variation is found to be unreasonable, possibilities of omission of purchases or inclusion of fictitious purchases are to be considered.
10. The auditor shall obtain from the management a certificate that all liabilities that had accrued till the close of the accounting year are fully accounted for.