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It is also necessary for auditors to examine post balance sheet payments to creditors and note the dates when the items in question were first invoiced. When concerns about the completeness of creditors persist, audi­ tors should undertake a circularisation of the company’s usual suppliers requesting confirmation of the year-end account balance. • Had the auditors matched on a test basis a sample of sales invoices with the delivery notes to customers or retail branches, they would have had an opportunity to detect instances in which sales had been inflated by the inclusion of clothing items that had not yet been completed.

Examination of the audit files showed that their awareness of the weaknesses was not reflected in their audit work, and this failure did not meet current standards of audit risk assessment. It was also reported that the defendant’s audit programme had been developed eight years previously and no significant updating had occurred. Lessons to be noted • This case demonstrates the importance of adopting an internally consistent approach to audit assignments: once alerted to a weak­ ness that can be exploited by a dishonest employee, auditors are required to reflect this awareness in their audit planning and ap­ proach.

The bank claimed to have relied on the accounts to its detriment. The underwriters were advised to reserve £600,000, which was the limit of the firm’s indemnity cover. Lessons to be noted • It is permissible for auditors to rely upon management represen­ tations as a form of evidence, but all too frequently this is regarded as a ‘soft option’ in circumstances when auditing methodology should be used to verify the assets in question. In this case the specific percentage adopted as the mark-up between made-up cost of clothing and their selling price should have been subjected to rigorous testing, albeit on a sampling basis, by reference to actual sales in the post balance sheet period.

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