Audit procedures. PAYABLES

Question 1

What is the primary risk associated with payables in financial statements?

Answer 1

The primary risk is that payables are understated, which relates to the Completeness assertion.

Question 2

Why is Completeness a critical focus when auditing payables?

Answer 2

Because testing should focus on ensuring all payable balances are included; selecting from the payables ledger alone may miss unrecorded balances.

Question 3

What sources of information can assist in auditing payables?

Answer 3

Records of credit transactions with specific clients
Auditor’s knowledge of key suppliers
Purchase ledger records (look for low, nil, or credit balances)
Confirmations from suppliers
Journals posted (e.g., for accruals).

Question 4

How can analytical procedures help in auditing payables?

Answer 4

Since purchases and payables are linked, payables payment period calculations can help identify potential misstatements.

Question 5

What is the Completeness assertion procedure for payables?

Answer 5

Obtain a sample of supplier statement reconciliations performed by the client and test reconciling items.

Inspect post year-end bank statements, identify payments to suppliers, and trace these to Goods Received Notes (GRNs).

For items related to pre year-end goods/services, confirm they are included in the payables balance.