![](\"http:\/\/s3.amazonaws.com\/snd-store\/a\/32653888\/11_23_18_1037076588_aab_560x292.jpg\")
<\/p>\nAt most companies, the accounts payable (AP) department handles an enormous volume of transactions. So, the AP ledger may be prone to errors or used to bury fraudulent journal entries. How do auditors get a handle on AP? They use four key procedures to evaluate whether this account is free from \u201cmaterial misstatement\u201d and compliant with U.S. Generally Accepted Accounting Principles (GAAP). <\/p>\n
1. Examination of SOPs<\/p>\n
Standard operating procedures (SOPs) are critical to a properly functioning AP department. However, some companies haven\u2019t written formal SOPs \u2014 and others don\u2019t always follow the SOPs they\u2019ve created. <\/p>\n
If SOPs exist, the audit team reviews them in detail. They also test a sample of transactions to determine whether payables personnel follow them. <\/p>\n
If the AP department hasn\u2019t created SOPs \u2014 or if existing SOPs don\u2019t reflect what\u2019s happening in the department \u2014 the audit team will temporarily stop fieldwork. Auditors will resume testing once the AP department has issued formal SOPs or updated them as needed. <\/p>\n
2. Analysis of paper trails<\/p>\n
Auditors use the term \u201cvouching\u201d to refer to the process of tracking a transaction from inception to completion. Analyzing this paper trail requires auditors to review original source documents, such as:<\/p>\n
The audit team may select transactions randomly, as well as based on a transaction\u2019s magnitude or frequency. They\u2019ll also ascertain whether the company has complied with invoice terms and received the appropriate discounts. <\/p>\n
3. Confirmations<\/p>\n
Auditors may send forms to the company\u2019s vendors asking them to \u201cconfirm\u201d the balance owed. Confirmations can either:<\/p>\n
If the amount confirmed by the vendor doesn\u2019t match the amount recorded in the AP ledger, the audit team will note the exception and inquire about the reason. Unresolved discrepancies may require additional testing procedures and could even be cause for a qualified or adverse audit opinion, depending on the size and nature of the discrepancy. <\/p>\n
4. Verification of financial statements <\/p>\n
Auditors compare the amounts recorded in the company financial statements to the records maintained by the AP department. This includes reviewing the month-end close process to ensure that items are posted in the correct accounting period (the period in which expenses are incurred).<\/p>\n
Auditors also review the process for identifying and recording related-party transactions. And they search for vendor invoices paid with cash and unrecorded liabilities involving goods or services received but yet not processed for payment. <\/p>\n
Get it right<\/p>\n
These four procedures may be conducted as part of a routine financial statement audit \u2014 or you may decide to hire an auditor to specifically target the AP department. Either way, your payables personnel can help streamline fieldwork by having the formal SOPs in place and source documents ready when the audit team arrives. Contact us for more information about what to expect during the coming audit season. <\/p>\n
\u00a9 2018
\n<\/body>
\n<\/html><\/p>\n","protected":false},"excerpt":{"rendered":"
At most companies, the accounts payable (AP) department handles an enormous volume of transactions. So, the AP ledger may be prone to errors or used to bury fraudulent journal entries. How do auditors get a handle on AP? They use four key procedures to evaluate whether this account is free from \u201cmaterial misstatement\u201d and compliant … Continue reading “4 steps to auditing AP”<\/span><\/a><\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-884","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/www.excelsisaccounting.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/884","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.excelsisaccounting.com\/blog\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.excelsisaccounting.com\/blog\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.excelsisaccounting.com\/blog\/index.php\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.excelsisaccounting.com\/blog\/index.php\/wp-json\/wp\/v2\/comments?post=884"}],"version-history":[{"count":1,"href":"https:\/\/www.excelsisaccounting.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/884\/revisions"}],"predecessor-version":[{"id":885,"href":"https:\/\/www.excelsisaccounting.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/884\/revisions\/885"}],"wp:attachment":[{"href":"https:\/\/www.excelsisaccounting.com\/blog\/index.php\/wp-json\/wp\/v2\/media?parent=884"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.excelsisaccounting.com\/blog\/index.php\/wp-json\/wp\/v2\/categories?post=884"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.excelsisaccounting.com\/blog\/index.php\/wp-json\/wp\/v2\/tags?post=884"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}