to prove that amounts shown on the statement of financial position are

To prove that amounts shown on the statement of

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of invoices. to prove that amounts shown on the statement of financial position are in agreement with supporting accounting records. to determine that liabilities existing at the balance sheet date have been recorded. b. Tan is not required to use accounts payable confirmation procedures. Unlike accounts receivable, accounts payable require no opinions as to valuation. The auditor is required to obtain direct confirmation of accounts receivable, since the primary audit test is for possible material overstatements and the client usually has available only internal documents, such as sales invoices. For accounts payable, the auditor can examine external evidence, such as vendor invoices and vendor statements that substantiates the accounts payable balance. Although not required, accounts payable confirmation procedures are often used. The auditor might consider using them when internal controls are weak. the company is in a tight cash position, and bill paying is slow. physical inventories exceed general ledger inventory balances by significant amounts. certain vendors do not send statements. vendor accounts are pledged by assets. vendor accounts include unusual transactions.
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Substantive Tests of Liabilities 16-3 c. A selection technique using the large peso balances of accounts is generally used when the primary audit objective is to test for overstatements (e.g., accounts receivable audit work). Accounts with zero balances or relatively small balances would not be subjected to selection under such an approach. When auditing accounts payable, the auditor is primarily concerned with the possibility of unrecorded payables or understatement of recorded payables. Selection of accounts with relatively small or zero balances for confirmation is the more efficient direction of testing since understatements are more likely to be detected when examining such accounts. When selecting accounts payable for confirmation, the following procedures could be followed: Analyze the accounts payable population and stratify it into accounts with large balances, accounts with small balances, and accounts with zero balances. Use a sampling technique that selects items based on criteria other than the peso amount of the items (e.g., select based on terminal digits, select every n th item based on predetermined interval, etc.). Design a statistical sampling plan that will place more emphasis on selecting accounts with zero balances or relatively small balances, particularly when the client has had substantial transactions with such vendors during the year. Select prior-year vendors that are no longer used. Select new vendors used in the subsequent period. Select vendor that do not provide periodic statements. Select accounts reflecting unusual transactions during the year.
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