Detailed guidance on auditing payables and accruals

 Audit Procedures for Trade Payables and Accruals

1. Obtain and Agree Purchase Ledger Listing
• Obtain a detailed listing of trade payables from the purchase ledger.
• Agree the total to the general ledger and ensure consistency with the financial statements.
2. Reconcile Purchase Ledger Accounts
• Reconcile the total of purchase ledger account balances with the purchase ledger control account.
• Cast (sum) both the list of balances and the control account to identify discrepancies.
3. Review for Omissions
• Compare the current year’s list of trade payables with prior years to identify missing or omitted suppliers or balances.
4. Year-on-Year Comparison
• Compare aggregate trade payables and accruals to the prior year’s figures.
• Investigate and explain any material movements or significant differences.
5. Trade Payables Days Ratio
• Calculate the trade payables days ratio (average time taken to pay suppliers).
• Investigate any notable changes, especially decreases, compared to previous years, which can reveal understatements or changes in payment policy.
6. Supplier Statement Reconciliation
• Obtain year-end supplier statements.
• Reconcile them to corresponding purchase ledger balances and investigate discrepancies.
7. Post Year-End Payments Review
• Select a sample of payments made after year-end.
• If they relate to expenses incurred before year-end, ensure they are included in payables or accruals as at the year-end.
8. Review After-Date Invoices and Credit Notes
• Examine invoices and credit notes received after the year-end.
• Ensure all relevant items are accrued and no required accrual is omitted.
9. Goods Received Notes (GRNs) Cut-Off Testing
• Using audit analytics, analyze the dates of the last GRNs recorded.
• Verify that only GRNs for goods received before year-end are included in payables; post-year-end goods must be excluded to ensure proper cut-off.
10. Trade Payables Circularisation
• Choose a sample of supplier balances and send confirmation requests to suppliers.
• Follow up on any non-responses or differences between confirmed and book balances.
11. Recalculate Accruals for Goods Not Invoiced
• Use audit software to recalculate accruals for goods received but not invoiced at the year-end, based on GRNs and contracts.
12. Discuss Management’s Accrual Process
• Discuss with management how they identify goods or services received but neither invoiced nor recorded.
• Assess whether their process captures all necessary payables and accruals.
13. Confirm Classification as Current Liabilities
• Ensure all trade payables and accruals are correctly classified as current liabilities in the financial statements.
14. Review Debit Balances and Reclassification
• Identify any suppliers with debit (receivable) balances.
• Discuss with management and consider whether these need to be reclassified as current assets.
15. Review Financial Statement Disclosures
• Examine the notes and disclosures in the financial statements for payables and accruals.
• Ensure disclosures are complete, accurate, and in compliance with reporting standards.

Summary Table of Audit Steps

Step	Description
1	Obtain and agree listing to ledger and FS
2	Reconcile purchase ledger and control account
3	Check omissions vs prior years
4	Year-on-year comparison of totals
5	Calculate and compare payables days ratio
6	Supplier statement reconciliation
7	Review post year-end payments for proper accrual
8	Assess after-date invoices/credit notes
9	Test GRNs, confirm cut-off
10	Trade payables circularisation and resolution
11	Recalculate accruals using audit software
12	Review management’s identification process for accruals
13	Confirm as current liabilities
14	Analyze debit balances, consider reclassification
15	Confirm FS disclosures are complete and correct

These steps ensure that payables and accruals are complete, properly classified, and accurately reported in the financial statements.

Procedure Focus	Assertions Verified
Ledger agreement & reconciliations	Accuracy, Completeness
Post-year-end testing	Cut-off, Completeness
Supplier statements / circularisation	Existence, Accuracy, Completeness
Accrual recalculation & GRNs review	Valuation, Completeness
FS disclosures	Presentation, Disclosure

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