To determine whether accounts payable are complete, an auditor performs a test to verify
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An accounts payable audit is an independent review of all accounts payable procedures and records. An accounts payable audit is a necessity for all businesses, regardless of size. For larger businesses, an accounts payable audit isn’t an option – it’s a requirement. With the introduction of the Sarbanes-Oxley Act in 2002, if you’re a publicly held company, you are required by law to submit all appropriate records for an independent audit. But small businesses aren’t off the hook. Even if your business is privately owned, an independent audit is a good risk assessment tool that can help you uncover potential fraud or identify other weak spots in your accounting procedures. In a 2020 study, the Association of Certified Fraud Examiners found that the average organization loses around 5% of revenue to fraud. Whatever size business you work for, losing 1/20th of your profits to fraud has a huge impact. The same study identified that lack of internal controls contributed to nearly 1/3 of all fraud. Conducting an audit regularly, even an internal audit, can keep your business financially healthy for the long term. What Is an Accounts Payable Audit?An accounts payable audit is a process designed to examine all of the financial records that flow through the accounts payable department. An accounts payable audit should always be performed by an independent accounting firm to maintain objectivity throughout the process. When auditing accounts payable, auditors are generally looking for the following.
How Do You Audit Accounts Payable?Auditors are tasked with examining accounts payable-related records for authenticity while also looking for signs of fraud along with general mistakes. Rather than worry, provided that they are doing things properly, accounts payable departments should look at audits as an opportunity to uncover and correct any potential issues before they become serious. Are you wondering exactly what auditors may want to look at during an AP audit? While it can vary, auditors will likely want to look at the following:
Once an audit has been scheduled, there are four separate analytical procedures involved in the accounts payable audit process.
What Are the Typical Audit Procedures?When auditing accounts payable, most auditors will use five or possibly seven audit procedures. The five most common audit procedures include the following.
How Do You Test the Completeness of Accounts Payable?During the audit, the auditor should test for the completeness of accounts payable. The primary method for testing the completeness of accounts payable is to search for unrecorded liabilities. This is done by obtaining a list of all cash disbursements made after year-end. Once these payments have been identified, the auditor requests a copy of the invoice to determine whether it was properly recorded at year-end. The payables listing total should always agree with the balance recorded in the general ledger. When performing the completeness test, auditors will also randomly select vendor statements to see if they match with the vendor account. The timeliness of the recording of the payables will also be examined. Auditors also look at the approvals process and whether the payable was recorded properly, in the correct accounting period, for the correct amount. Why Is Auditing Accounts Payable Regularly Important?Auditing is an important process for any business, but auditing accounts payable is particularly important since understatement of liabilities and theft are two main occurrences that directly impact accounts payable. There are three areas in particular that accounts payable is vulnerable to.
Having the proper controls in place can reduce or even eliminate these occurrences. Controls include ensuring segregation of duties in the accounts payable process. For example, one person would approve purchases while another would be responsible for vetting and entering vendors into the accounts payable system. Called segregation of duties, it’s important for all businesses, even small ones to have controls in place. How To Prepare for an AuditIf your business is scheduled for an audit, there are a few things you can do to prepare. While preparation may not be necessary, it can make the process go a lot smoother.
Audits Don’t Have To Be ScaryAudits are a necessary part of doing business, but they don’t have to be scary. If you have the proper tools and resources in place to automate the entire AP process from initial purchase order to invoicing, to payment processing, your accounts payable processes will be transparent. With a good AP automation software and procure-to-pay software application, you can process your invoices faster, so your suppliers get paid faster while reducing errors and eliminating the possibility of fraud. Better yet, you’ll increase your chances of passing your next accounts payable audit. What’s your goal today?2. Download our guide “Preparing Your AP Department For The Future”Download a free copy of our guide to future proofing your accounts payable department. You’ll also be subscribed to our email newsletter and notified about new articles or if have something interesting to share. 3. Learn best practices for purchasing, finance, and moreBrowse hundreds of articles, containing an amazing number of useful tools, techniques, and best practices. Many readers tell us they would have paid consultants for the advice in these articles. How do you test the completeness of accounts payable?The primary method for testing the completeness of accounts payable is to search for unrecorded liabilities. This is done by obtaining a list of all cash disbursements made after year-end.
What is the purpose of testing for completeness in accounts payable?Testing for completeness means checking that the company records show all the accounts payable and state the amounts owed accurately; understating or omitting the amounts owed will distort the balance sheet and make a company look more profitable than it is.
When using confirmation to provide evidence about completeness assertion for accounts payable the appropriate population most likely is?For example, when using confirmations to provide evidence about the completeness assertion for accounts payable, the appropriate population might be a list of vendors rather than the amounts recorded in the accounts payable subsidiary ledger.
Which of the following procedures relating to the audit of accounts payable would the auditors be most likely to delegate entirely to the client's employees?audit exam 3. |