Testing of Completeness Assertion for Accounts Payable and Purchases
Reconciling total amounts in subsidiary ledgers with the general ledger
Performing analytical procedures (e.g., comparing accounts payable turnover with the previous year)
Tracing subsequent payments to recorded payables
Searching for unvouchered (unsupported) payables
Testing of Accuracy Assertion for Accounts Payable and Purchases
Obtaining management representation letters
Comparing general ledger balances and financial statement balances.
Accounts payables and purchases are subject to higher risks of an understatement. External confirmations are not effective in disclosing unrecorded payables. If confirmations are to be made, the blank form of positive confirmations should be used.
Cut-Off Assertion for Accounts Payable and Purchases
Purchases cutoff – Determining whether accounts payables are recorded at year-end for goods whose titles are obtained
FOB shipping point: title obtained when shipped
FOB destination: title obtained when received
Cash disbursement cutoff test – Testing the recording of cash disbursement and accounts payables reduction
Tracing the last check written to the accounting records
Rights and Obligations assertion for accounts payables and purchases
Inquiring of management about the nature of recorded liabilities
Occurrence assertion for accounts payables and purchases – Vouching recorded payables to requisitions, purchase orders, receiving reports, and approved invoices
Classification and understandability assertion for accounts payables and purchases
Evaluating
Classification of accounts payables as current liabilities
Disclosures of
Unusual significant transactions
Purchases and payables with related parties
