Auditing Accounts Payable Video - ExamPrep.ai CPA Review

Lesson: Auditing Accounts Payable

In this lesson, Nick Palazzolo covers the audit procedures related to accounts payable, including existence, completeness, occurrence, valuation, allocation, accuracy, and rights and obligations. He discusses different methods of verifying existence, such as confirming with vendors and examining support documents. The lesson emphasizes the importance of verifying completeness as auditors are more concerned about the understatement of liabilities. The lesson also covers the out-of-period search, aged accounts receivable list, and how to test the accuracy of the coding of accounts payable transactions. Finally, the lesson delves into rights and obligations, ensuring that obligations are identified and properly accounted for.

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Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Moving on to accounts payable. Now we are at existence, existence for our physical, not physical, right? But it's, I like to say the word physical for assets and liabilities, more so these actual balances at any point in time. How do we verify the existence of accounts payable? Well, we can confirm with vendors, so send out confirmations and also examining support documents such as invoices and purchase orders. I'd say this is going to be much more what you're going to lean with. I know I keep kind of shutting down the confirmations for accounts payable, but this is going to be much more what we're going to look at. Completeness. Let's talk about completeness for accounts payable. Obviously you can see we've got a little bit more here. And what are we going to do to verify the completeness of accounts payable? Well, we can examine vendor invoices for amounts not reported as purchases, as accounts payable would be understated for amounts of purchases that were not reported. We're going to look through those invoices, make sure they were actually accounted for. As we say over and over, yes, we're worried about the understatement of expenses, but also the overstatement. We're worried about both portions. We can also verify that all merchandise received is recorded through selecting receiving reports and determining whether the related payable was recorded. Looking through those documents, pieces of documentation, making sure that everything is properly accounted for. And lastly here, searching for unrecorded liabilities. This is a big one, a big kicker here. We can examine receiving reports for items received before the year end, but not recorded. And then dealing with kind of getting into cutoff there, but more so completeness when it comes to AP. You can also review purchase

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