PURCHASE AND ACCOUNTS PAYABLE AUDIT

PURCHASE AND ACCOUNTS PAYABLE AUDIT

SPECIFIC AUDIT OBJECTIVES

The auditor's objectives when examining Purchases and Accounts Payable are to have assurance
reasonable of:
(a) Determine the adequacy of the internal controls for the processing and payment of the
invoices from the sellers.
Check that the amount presented in the balance sheet is correct.
with the main and auxiliary control records.
(c) Check if all obligations that exist as of the balance sheet date have been
registered.
(d) All purchase operations and payables have been duly
authorized and constitute obligations of the company
e) The interests, discounts, and other concepts related to purchases and accounts
To be paid have been identified, classified, fulfilled and revealed
(f) If the balances of the suppliers are reasonable and the amount of purchases is in accordance with
the needs of the company.
g) Check that the liabilities are not undervalued and that they are adequate.
described and classified in the financial statements.
AI set the objectives for the Accounts Payable exam that the auditor must have in mind
consideration that current liabilities generally include obligations for goods and
acquired services and other accrued expenses. It includes received deposits, payments
advances, promissory notes, bank loans or loans from related companies, short term and the part
long-term debt stream.
It is an essential condition for a liability to be considered a current liability,
that requires the use of current assets or that gives rise to another current liability for its
cancellation.

ACCOUNTING PRINCIPLES RELATED TO PURCHASES AND ACCOUNTS

TO PAY

The accounting principles specific to accounts payable are:

All known liabilities must be accounted for regardless of whether
They can be calculated exactly or not.
2) If the value of the liabilities cannot be estimated approximately, the nature of the

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facts must be clearly demonstrated in the same balance sheet alongside the liabilities or by
in the middle of a note to the financial statements.

3) Current liabilities must include all items that will be settled within
a year or within the normal operating cycle of the business in question, must
the same criteria used to classify current assets should be applied.
4) The promissory notes or other liabilities to banks must be clearly demonstrated separately, letters for

paying third parties, accounts payable, which may include unpaid salaries or wages,
provisions for income taxes and other taxes, accounts or notes payable to
employees and accounts or notes payable to affiliated companies.
5) Long-term liabilities must be clearly described showing the dates of
maturity and the interest that accrues
6) The nature and amounts of the liabilities that are secured by a pledge or other guarantee over
assets, must be demonstrated
These accounting principles are specified in ARB-43 (Accounting
Research Bulletin translated as AICPA Accounting Research Bulletin, issued
by the American Institute of Certified Public Accountants.

CURRENT AND NON-CURRENT LIABILITIES

Current liabilities will include all debts expected to be paid within the normal operating cycle.
operations and this situation must be disclosed in a note to the financial statements
The main concepts included in current liabilities are:
Accounts payable
Documents payable
Salaries Payable
Taxes Payable
Sales guarantees
Dividends payable
Advances received from customers
Security deposits

The portion of long-term liabilities that over time becomes a

payment obligation within the next twelve months, from the end of the fiscal year or within
of the normal cycle of operations if the latter is greater, it turns into a short-term liability.

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and therefore it must be classified as such.

EVALUATION OF INTERNAL CONTROL

The auditor must take into account that the evaluation of the internal control of purchases and
Accounts payable is directly related to the work done in the cash area.
expenses. In the evaluation of this subsystem, the auditor selectively confronts the expenses
of the box with the documents that support the accounts payable or other documents
related to the purpose of verifying the existence of sufficient and competent evidence
that supports the expense.

On the other hand, in the examination of accounts payable, the auditor needs to verify that the
client controls and procedures provide reasonable assurance that the
purchases and the accounts payable connected with the corresponding expenses represent
valid obligations for goods or services received. In this sense, some
selected transactions for detailed verification in the purchase evaluation
Accounts payable will be the same as those verified in the assessment of the Subsystem.
cash - expenses.

PURCHASES AND ACCOUNTS PAYABLE

The objectives of a solid internal control system for Purchases and Accounts Payable are:
The goods or services received must be recorded in the accounts. Likewise, that the
Credits to suppliers correspond to goods and/or services received.
The purchases made must be authorized according to the company's policies.
regarding.
Purchases must be properly recorded, classified to the accounts
corresponding and reflected in the period to which they correspond.
Purchases must be summarized correctly and recorded in the general ledger.

Similarly, the auditor must keep in mind that their evaluation of the purchasing-accounts payable area
it also provides security in other areas of the audit, including certain
aspects of the inventory area - cost of sales, cash outflows, and other asset accounts.

In the case of acquiring services, a certificate is needed that the services

have been provided to support the payment. In some cases, the approval of the invoice
from a responsible official can provide the necessary evidence; in others

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In cases, there may be concrete evidence, for example, contracts, copies of advertisements.
rivers, etc.

The auditor must take into account the effectiveness of the controls established for the
processing of purchase transactions and accounts payable, as a prerequisite to
any decision that I must make regarding the functional tests of the transactions
that I wish to carry out.

Among the accounting control tests that the auditor must apply, they should conduct tests that allow them to

allow reasonable security on:

a) Segregation of functions: requisition, purchase order, receipt, registration and
cancellation.
b) There must be procedures to ensure that in the purchases of the
goods and/or supplies are obtained at the most advantageous prices.
c) Purchase orders must be considered as a basic document to support
the registration and payment of supplier invoices.

d) All debit notes to suppliers must be issued correctly and in a timely manner.
e) There must be procedures to control the reception of goods and services.
f) Check if the procedures followed in relation to accounts payable provide
a reasonable assurance that the supplier invoices are correct and that
correspond to the goods and services received.
g) There must be procedures in place to provide reasonable assurance that the
accounts payable and the corresponding charges are properly recorded.
h) The people who perform functions related to accounts payable must be different.
Purchases and the reception of goods or services.

COMPLIANCE TESTS APPLICABLE TO PURCHASING AND ACCOUNTS PAYABLE

PAY

The control elements that are verified, the procedures that are applied and the scope of
The tests vary from one job to another according to the auditor's objectives. Likewise
Thus, the scope of the tests will depend on the outcome of the preliminary assessment.
effectiveness of internal accounting control, as well as the degree of trust that the auditor places
in it.
Among these tests we have:
Examine the purchase record and the accounts related to purchases and expenses in the

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general ledger with the purpose of establishing the existence of infrequent entries, the
If applicable, they should be investigated.
Check the validity of the control system over purchase orders, guides of
remittance and invoices to be paid. Cross the source documents for review with the
first entry books.
Confront the purchase orders with the warehouse orders (purchase requisitions).
Verify the reasonableness of the quantities and prices, and the usage or consumption factor for
the business objectives. Review the received quotes.
Compare supplier invoices with purchase orders, shipping guides and
warehouse entry parts.
Check the appropriateness of the arithmetic calculations on the invoices.

Examine the claims of suppliers, credits, bonuses, and returns:

check that the authorization and necessary documentation exist and examine the
corresponding amounts: review the shipping reports and knowledge of
corresponding embarkation for returns.
Check the appropriateness of the accounting assignment of purchase transactions.
Check the accuracy of the arithmetic calculations in the journal. the purchase record and
other related records.
Check the transfer to the general ledger of the transactions recorded in the purchases register.
Cross the purchase of stocks with the perpetual inventory records.
Review partially fulfilled or unfulfilled purchase orders, invoices, shipping guide
suppliers' shipment and income reports to the warehouse to determine availability
of old or unusual games; and if applicable, investigate them.

SUBSTANTIVE TESTS OR VALIDATION OF PURCHASES AND ACCOUNTS BY

PAY

The validation tests of accounts payable and liabilities in general tend to

to provide assurance that there are no significant unrecognized or unreported liabilities
REGISTERED.
Doubts about the possible overstatement of accounts payable rarely arise.
because the balance consists of items that have been reviewed and recognized before being recorded;
the accrued liabilities are overestimated or underestimated if the definitive determination of the liability

differs from the estimate on which the accumulation is based. The greatest risk when considering the
The purchasing procedure, whether with good or bad internal control, is that they can go unnoticed or not.

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upon registering some liabilities.

The auditor must have a clear understanding of the interrelationship that exists between accounts payable and the

inventories, in relation to the company's attempt to exaggerate current assets

and mitigate short-term liabilities. Example: if in the days leading up to the end of the fiscal year...
goods or merchandise were received and the corresponding invoice from the supplier is not recorded
In the purchase record, the current asset will have increased by the cost of the goods.
received without the appropriate increase in accounts payable. Consequently, the profits
The exercise will be overestimated (or the losses underestimated) by the same amount.

On the other hand, if the invoice has been accounted for at the end of the fiscal year but the merchandise or the

supplies had not yet been received, and consequently were not included in the inventory.
current assets and the profit of the exercise are underestimated. The cut of purchases
it is the indicated procedure to detect these distortions in the financial information.
Another important objective of accounts payable validation tests is to obtain
evidence that the client has appropriate responsibility procedures for
keep track and account for liabilities.

MINIMUM AUDIT PROCEDURES APPLICABLE TO PURCHASES AND

ACCOUNTS PAYABLE

An audit program that includes minimum procedures for the examination of purchases
and accounts payable would be:
Study and evaluate the effect of internal accounting control procedures
they are produced in the scope of work for accounts payable.
Apply analytical review procedures: The auditor can perform the
comparisons following the analytical review of this item;
comparing:
1. the balances of the current year with the budget of this year and with the actual figure of the previous year.

2. The ratio between accounts payable and purchases from this year and last year.
3. The overdue accounts payable with the total accounts payable for this year and the
anterior.
4. The balances corresponding to related companies for the current year and the previous year.

Send confirmation requests to selected suppliers; send second

request to the suppliers who did not respond to the first one.
Review the payments subsequent to the closing of the accounting period, as well as the
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unpaid invoices to determine if any of them represent obligations not

registered.
AI to study and evaluate the internal control established by the company for purchases and
accounts payable, the auditor must take into account the possibility that there may be
important unrecorded liabilities. These possibilities are evaluated in part by the
results of compliance tests (transaction tests) of Purchases - Accounts
to be paid, and partly through dual-purpose tests applied to the procedures
of accumulated liabilities (remunerations to be paid, interest to be paid, taxes)
to be paid, etc.) and to the balances of the accounts.

The extent of the procedures to be applied depends on the magnitude of the possibilities of
occurrence. An example would be when the internal control system implemented by the
the client considers that the supplier's invoice is compared with the shipping guide and with the
part of the warehouse entry. The effective application of this procedure will reduce the
probabilities that some merchandise or received supply will not be taken into account and of
that an invoice remains unregistered.

CONTROLS THAT REDUCE UNRECOGNIZED LIABILITIES

Below are other examples of controls that reduce the probability
that there are unrecorded liabilities:
The review and investigation conducted by the client company of the purchase orders pre
numbered by printing and the shipping guides not accompanied by the invoices of the
provider at the end of the month.
The reconciliation, made by the client, of the monthly account statements received from the
suppliers with registered accounts payable.
The monthly reconciliation of detailed accounts payable with the control account of
major general.
It is important to take into consideration that the account confirmation procedure, for
Payment is a commonly used procedure by the accounting profession on our continent.
To understand the method of selecting accounts payable over the
which will request confirmation, hayque to keep in mind the difference of
focus on the audit of assets and liabilities, as follows:
AUDIT APPROACHES

ACCOUNTS TO PAY THE AUDITOR MATTER MORE TO HIM WHAT page 7

IT IS NOT ACCOUNTED FOR
THE AUDITOR
WHAT IS ACCOUNTED FOR IS MORE INTERESTING
PURCHASE AND ACCOUNTS PAYABLE AUDIT

To test the integrity and existence of accounts payable, the auditor, as a general rule,
send confirmation requests to the main suppliers of the client company, without
import the balance of your account at the end of the fiscal year.

The auditor's objective is to obtain confirmations of accounts that may have balances.
significant in accounts payable and not necessarily those that have balances
significant records. Is this the reason that leads the auditor to request confirmations from
suppliers who have no balance as of the audit date.

The auditor prepares a summary sheet for the control of confirmations with the double
objective:
1. record the amount confirmed by the supplier; and
2. reconcile the confirmed amount with the balance that appears in the account analysis
prepared by the company and with the balance of the general ledger.

All differences that arise between the client's accounting records and the confirmations
obtained must be reconciled.
It is important to highlight that the request for confirmation of ACCOUNTS RECEIVABLE
contains the customer's balance; while the request for confirmation of the ACCOUNTS PAYABLE
PAGAR contains the requirement for the supplier to indicate the amount owed to them.
audited company.
With the confirmation of accounts receivable, the auditor seeks to verify the recorded balance; with
the confirmation of accounts payable seeks to know all the amounts owed to
suppliers, whether registered or not.

It is also important to look for evidence of accounts payable by carefully reviewing what
next: Accounts payable file as of the search date, Invoice file or
paid vouchers, purchase records for the following month, cash payment records during
the next month and Pending purchase orders (invoices that may appear at that time
they could have been withdrawn passive and were paid after the period of
review)

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CONCLUSION

Send the observations (findings) to the involved officials in order to receive the
corresponding discharges, in compliance with NAGU 3.60 and modified by the Directive
No. 259-2000-CG.

Evaluate the responses received in order to determine the final observations that are
they will present in the long report.

Prepare a memorandum that contains the conclusions that have been reached, and the
case recommendations.

Clarify all the observations found in the tests indicated above, discuss with the
appropriate person, indicating name, position, date of discussion of the observations.

Send the observations (findings) to the involved officials in order to receive the
corresponding discharges, in compliance with NAGU 3.60 and amended by the Directive
No. 259-2000-CG.

Evaluate the received responses in order to determine the definitive observations that are
They will be presented in the long report.

Prepare a memorandum that contains the conclusions reached, and the

case recommendations.

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BIBLIOGRAPHY:

Jaime Ernesto Vizcarra Moscoso: FINANCIAL AUDIT: Risks, Control

Internal, Corporate Governance and Financial Reporting Standards.
Editorial: Instituto Pacífico SAC. Lima, Peru 2007

Mario Vergara Barreto, Olga Vergara Silva, Mario Vergara Silva

200 MODERN AUDIT TOPICS
Editorial: Institute of Accounting and Financial Research
Lima, Peru 2,002

http://www.gestiopolis.com/accounts-receivable-and-payable-management-audit-program/

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