Are you auditing payables and expenses? In this post, we’ll answer questions such as, “how should we test accounts payable?” and “should I perform fraud-related expense procedures?” We’ll also take a look at common risks and how to respond to them.
Auditing Accounts Payable and Expenses — An Overview
What is a payable? It’s the amount a company owes for services rendered or goods received. Suppose the company you are auditing receives $2,000 in legal services in the last week of December, but the law firm sends the related invoice in January. The company owes $2,000 as of December 31, 2016. The services were provided, but the payment was not made until after the period-end. Consequently, the company records the $2,000 in its year-end payables.
In determining whether payables exist, I like to ask, “if the company closed down at midnight on the last day of the month, would it have a legal obligation to pay for a service or good?” If the answer is yes, then record the payable—even if the invoice is received after the month-end. Has the service been received by month-end? Have the goods been received by month-end? If yes and the company has not paid for the service or good by month-end, then the company has a payable.
In this post, we will cover the following:
- Primary accounts payable and expenses assertions
- Accounts payable and expense walkthroughs
- Directional risk for accounts payable and expenses
- Primary risks for accounts payable and expenses
- Common accounts payable and expenses control deficiencies
- Risk of material misstatement for accounts payable and expenses
- Substantive procedures for accounts payable and expenses
- Typical accounts payable and expense work papers