ACCA Audit and Assurance (F8) Practice Exam

When might you need to circularise suppliers?

1. If internal audits are incomplete

2. If statements are missing or incomplete

3. If the supplier is changing ownership

4. If there are excess payments to suppliers

The correct answer is: If statements are missing or incomplete

In the context of auditing, circularising suppliers is a substantive procedure used to verify balances or transactions by directly contacting suppliers. This practice is particularly relevant when there are concerns about the accuracy of statements received from those suppliers. When statements are missing or incomplete, it creates uncertainty about the financial figures being reported. Circularisation allows the auditor to confirm the amounts owed to suppliers and ensures that all transactions have been properly recorded. This process reduces the risk of misstatements in the financial statements, ensuring that they present a true and fair view of the company's liabilities. The other scenarios may not necessarily warrant the need for circularisation in the same manner. For instance, if internal audits are incomplete, while it may raise concerns about systems and controls, the need to circularise suppliers specifically relates more directly to confirming the accuracy of recorded balances. Similarly, changes in supplier ownership, while significant operationally, don't inherently mean that past transactions or balances are incorrect and do not trigger the need for confirmation. Lastly, when there are excess payments to suppliers, these could indicate mismanagement or clerical errors, but they also do not automatically necessitate the step of circularisation unless they impact the verification of recorded balances significantly. Thus, the necessity to circularise suppliers primarily arises