In preceding posts in relation to auditing creditors, we pointed out about:
- Evaluation of Creditors' Statement of Account
- Acquire Cut-off testing
- Comparison of existing year balance to prior year balance
Also for the above, it will be fantastic if a creditors' turnover evaluation is performed:
Creditors Turnover (day): Purchase/ Average Trade Creditors x 365 [for periodic inventory system]
Creditors Turnover (day): Purchase/ Average Trade Creditors x 365 [for perpetual inventory system]
Auditor can evaluate the creditors' turnover (day) calculated above to common creditor term provided from the creditors to assess in the event the Corporation has been repaying on time. In the event the creditors' turnover (day) is drastically longer than the credit term provided by suppliers, this could indicate the liquidity situation the Corporation is facing.
