Subject: Alternative Procedure Recommendations
Hello Audit Team,
I would love to hear your thoughts on the best alternative procedures to implement when we don’t receive accounts payable confirmations from a third party. What approaches do you find most effective in these situations?
Thanks in advance for your insights!
One response
Dear [Name/Team],
When accounts payable confirmations are not received from third parties, there are several alternative procedures that can be employed to ensure the integrity and accuracy of the financial statements. Here are some suggestions:
Subsequent Payment Testing: Review payments made after the period-end to confirm whether they relate to the accounts payable balance. This can help verify the existence of liabilities.
Vendor Statements: Obtain statements from key vendors. This provides an alternative method to confirm balances and transactions directly with the supplier.
Analytical Procedures: Conduct analytical reviews comparing current year balances to historical trends, industry averages, or expected outcomes based on known variables.
Internal Documentation Review: Examine purchase orders, receiving reports, and invoices related to the payables. This documentation can provide evidence of transactions even in the absence of confirmations.
Inquiry with Management: Engage in discussions with management regarding accounts payable balances to understand any unusual transactions or potential issues.
Substantive Testing: Increase the extent of substantive testing on related transactions, such as testing a larger sample of invoices and confirming their appropriateness against the accounts payable balance.
Review of Cut-off Procedures: Evaluate the cut-off procedures at year-end to ensure that liabilities are recorded in the correct period.
By implementing a combination of these procedures, we can gather sufficient appropriate Audit evidence to support our conclusions on accounts payable. I look forward to hearing any additional suggestions or experiences you may have.
Best regards,
[Your Name]