Chapter 6: Audit of Current Liability
Chapter 6: Audit of Current Liability
LIABILITY
6.1 Accounts payable and other
liabilities
. 6.1.1. Accounts payable
Sources and nature of accounts payable
The term accounts payable (often referred to as
vouchers payable for a voucher system) is used to
describe short-term obligations arising from the
purchase of goods and services in the ordinary
course of business.
Typical transactions creating accounts payable
include the acquisition on credit of merchandise,
raw materials, plant assets, and office supplies.
Cont’d
Other sources of accounts payable include
the receipt of services, such as legal and
accounting services, advertising, repairs, and
utilities.
Interest–bearing obligations should not be
included in accounts payable but shown
separately as bonds, notes, mortgages, or
installment contracts.
•
Internal control over accounts
payable
In thinking about internal control for accounts
payable, it is important to recognize that the
accounts payable of one company are the
accounts receivable of other companies.
Discussion of internal control applicable to
accounts payable may logically be extended to
the entire purchase or acquisition cycle.
Controls Over the
.
Acquisition Cycle
1. Segregation of duties--purchases and disbursements
.
2. Approval of purchase orders
3. Numerical control of purchase orders and receiving reports
4. Matching of details of vendors’ invoices to purchase orders and
receiving documents
5. Approval of vendors’ invoices
6. Pre-numbered checks
7. Reconciliation of details of individual disbursements to controlling
accounts
8. Reconciliation of vendors’ statements to accounts
9. Use of chart of accounts and review of account coding
Auditor’s objective in audit of
Accounts payable and related liabilities
INSERT
Most Likely Misstatements
.
Accounts Payable and Related Accounts
.
Incorrect recording- purchase/disbursement
Misappropriation of purchases
Embezzlement (disbursement or purchase)
Duplicate payments for purchases
Unrecorded disbursements
Out-of-Period recording of purchases or
disbursements
Failure to accrue liabilities
Audit procedures of Accounts
.
Payable and Related Accounts
1.. Obtain trial balance of accounts payable and reconcile with the
ledgers
2. Vouch balances payable to selected vendor invoices
3. Reconcile recorded liabilities with vendors’ statements
4. Confirm accounts payable
5. Perform analytical procedures
6. Perform search for unrecorded liabilities
7. Evaluate other current liabilities
8. Identify related party payables
9. Evaluate financial statement presentation and
disclosure
Confirmation of accounts payable
.
Disagree.
Unlike the presumption that accounts receivable will be confirmed
. limited exceptions, there is no such presumption about the
with
confirmation of accounts payable.
This test is optional because (a) confirmation offers no assurance that
unrecorded payables will be discovered, and (b) external evidence in
the form of invoices and vendor monthly statements should be
available to substantiate the balances.
Confirmation of accounts payable is recommended when control risk
is high, there are individual creditors with relatively large balances,
and when a company is experiencing difficulties in meeting its
obligations.
Contrasting Confirmation of Accounts
.
Payable and Accounts Receivable
. Accounts Payable Accounts Receivable