You are a senior auditor with Rodriguez & Jones, a small auditing firm located in Canterbury, an eastern suburb of Melbourne, Victoria. Your team has been assigned to the audit of a new client, Miller’s Merchandise, for the year ended 30th June 2021. Miller’s Merchandise is a Deepdene-based wholesaler offering for sale everything from baby food and beverages to snacks and vegetables, and everything in between.
You are planning the audit of accounts payable, where preparatory work has revealed the following:
- Miller’s Merchandise purchases its stock from a list of approved suppliers, with purchase orders processed electronically through a business-to-business e-commerce system. This system uses a fast chain model of supply, with suppliers electronically transmitting their invoices—this automated approach means supplier invoices are credited directly to the accounts payable file of Miller’s Merchandise upon receipt of the purchase order. You are concerned about the impact this might have on the existence assertion.
Please explain the impact (positive or negative) of the purchase orders being issued and shipped. Is there any potential issues on the shipment as the company uses a business-to-business system? Thank you.
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