Suggestions for Alternative Procedures
Hello Audit colleagues! I’m seeking your advice on what alternative procedures you would recommend when we don’t receive accounts payable confirmations from a third party. What do you think would be the best approach in this situation?
One response
Dear [Name],
Thank you for raising this important question. When accounts payable confirmations are not received from third parties, there are several alternative procedures you can consider to obtain sufficient Audit evidence:
Alternative Procedures for Balances: Compare the accounts payable balances on the client’s books with subsequent payments made. You can review bank statements or payment records for transactions occurring shortly after the period-end to confirm liabilities.
Vendor Statements: Request statements directly from the vendors themselves. These may provide a summary of the outstanding balances and can serve as independent verification.
Internal Documentation Review: Evaluate other supporting documentation provided by the entity, such as purchase orders, contract agreements, receiving reports, and invoices to verify that the accounts payable balances are consistent with the underlying transactions.
Analytical Procedures: Perform analytical procedures to identify any unusual trends or anomalies in the accounts payable balances. This can include comparing year-over-year balances, days payable outstanding (DPO), and other relevant metrics.
Third-party Information: Look for independent third-party confirmations or reports that might include confirmation of balances, such as industry benchmarks or financial reports that include vendor data.
Subsequent Events Review: Analyze transactions that occurred after the period-end to gain insights into the completeness and accuracy of the recorded liabilities.
Review Internal Controls: Assess the internal controls around the accounts payable process to determine if there are any inherent weaknesses that may impact the completeness of the liabilities.
Documenting all procedures and findings will be crucial to support your conclusions. Weighing the effectiveness and reliability of each alternative procedure will be essential to form a robust assurance on the accounts payable balances.
Hope that helps!
Best,
[Your Name]