Auditing accounts payable looks like a list of procedures and is really a test of three assertions. Completeness: is everything you owe recorded, including the invoices that had not arrived by the cut-off? Existence: is everything recorded genuinely owed, to a real supplier, for something actually received? Authorisation: did somebody with the power to commit the business agree to it? Every procedure an auditor runs is aimed at one of those three, and knowing which makes the work far easier to prepare for, because you can assemble the evidence for each assertion rather than reacting to a request list. This page is the three, and the procedure that tests each.
Completeness, and why it is the hard one
Understating payables is the easy error and the tempting one, so this gets the most attention. The standard procedure is a search for unrecorded liabilities: look at payments made after the period end and ask which relate to the period. A team that recorded what was unapproved at the cut-off answers this in minutes.
Existence, tested by matching
That the supplier is real, the goods or services arrived, and the amount is what was agreed. Where three-way matching operates consistently this is a sample of a working control. Where it does not, it becomes an investigation, and the difference in cost is considerable.
Authorisation, tested by tracing approvals
Sampling invoices and following the approval back to a person with the authority to commit that spend. Trivial when approvals are recorded against the invoice, and close to impossible when they live in email threads.
Questions people ask about auditing accounts payable
What is the most common audit adjustment in payables?
Unrecorded liabilities at the period end, by a wide margin, and almost always because invoices arriving after the cut-off were treated as next period's rather than assessed.
How can we make the audit cheaper?
Have the four things ready as records rather than rebuilds: the aging at cut-off, the unapproved list, an approval sample and the reconciliation. Auditors charge for reconstruction.
Is this audit advice?
No. It describes what payables audits generally examine. What your auditor requires and what standards apply to you are questions for them.