Accounts Payable Audit

What is an Accounts Payable Audit? How Does the Audit Process Work?

Posted on |Business and Finance|| 0
Accounts Payable Audit

When you run an organization, keeping track of financial transactions is imperative. Without a robust auditing procedure in place, you may end up facing fraudulent or duplicate payments.

Maintaining a record of accounts payable can keep your company debt-free. The account payable department handles short-term liabilities and unpaid purchases efficiently with the auditing process.

Read on to understand how this process works and the benefits of keeping track of payment details for an organization.

What is an Accounts Payable Audit?

An accounts payable audit system handles the comprehensive procedure of invoice management and bill-paying processes for a company. The audit handles the entire procure-to-payment (P2P) process and checks for backlogs and inefficiencies through this auditing process.

The auditors follow the General Accepted Accounting Principles (GAAP), the accounting standard adopted by the United States Securities and Exchange Commission.

If a company’s stocks are publicly traded, then it must regularly file GAAP-compliant financial statements. Internal auditors or external Certified Public Accountants (CPAs) scrutinize and balance the records in the company’s financial books.

How Does the Audit Process Work?

An accounts audit process heavily relies on fraud risk assessment standards set by the American Institute of Certified Public Accountants (AICPA).

Here are the four primary stages of an audit process to match an enterprise’s journal entries and bank records.

Scheduling the Audit

In this step, the company receives a notification about the audit, and a meeting is organized to discuss the standard operating procedures. It will help in assessing the objectives and need for the account evaluation.

Verification Process

The auditors then verify the account balances in the accounts payable ledger. They manually check and add each invoice by vendors. Any discrepancies found are then resolved in this step.

The audit firm analyzes financial statements in other documents that include:

  • Balance sheet
  • Check register
  • Purchase orders

The purpose of the audit system is to match the above details with the general ledger total for accounts payable.

Assertion Process

In this step, the auditor validates the information collected and tests for the following assertions.

Completeness: To check if all financial information is transparent and up-to-date for the users.

Accuracy: To verify the accuracy of expenses related to assets, liabilities, and equity in the company.

Cut-off:  To check if the transactions are correctly recorded for the specific period.

Existence: To check for fraudulent or duplicate information.

Rights and Obligations: To check if the company owes a liability for accounts payable at the reporting date.

Disclosure: The accounts payable are correctly segregated and disclosed in the annual financial statements.

Review and Report Generation

In the final stage of auditing, the AICPA applies analytical procedures on payable balances. It will help to check unusual increases or decreases in payments and financial liabilities.

They may obtain samples from vendors and cross-verify the figures to tally the accounts in the general ledger. The most crucial step in this process is to compare the current year’s opening balances to the previous year’s audited accounts.

They then find out the gaps or payment backlogs and help to settle the differences accordingly.

Final Thoughts

Account payables are constantly subjected to associated risks. A fraud or a miscalculation can incur substantial financial losses for a company.

Applying a unique auditing process can help detect unpaid invoices. It is the best way to safeguard the company’s financial information for a smooth and continuous business flow.

Emily Stuart Author

Emily Stuart is an experienced and independent content writer for some popular online communities.

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