At year-end, Tejas Builders Ltd. recorded cheques of Rs. 60 lakh as issued to suppliers, reducing both the bank balance and trade payables. The auditor finds the cheques were actually handed over to suppliers only in the third week of the next month. The appropriate audit view is that:

Correct answer: C) The cheques were not issued at the year-end; the payments should be reversed, increasing both the bank balance and trade payables by Rs. 60 lakh

Explanation

A payment by cheque occurs when the cheque is delivered to the payee. Writing cheques but holding them back is a form of window dressing that reduces reported liabilities and improves ratios. The entries should be reversed so that both cash at bank and trade payables increase by Rs. 60 lakh; the auditor should also consider the implications for management integrity.