Accounts payable 1301
NickyT last edited by
Pretty general question: Is accounts payable considered an inherently risky account balance? If so, what sort of factors contribute to this?
kymike last edited by
The risk associated with this account balance is similar to that of other accounts -
Is it properly stated (accurate)? Are there any balances in this account that should be separately stated on the balance sheet (i.e., debt or non-current liabilities)?
Is it complete? This is generally the highest-risk area as invoices for services are usually received on a lag to when the services were performed. Also, when you have a large company and invoices are sent to different locations for approval prior to being remitted to the AP department for payment, they can be mis-directed or even held until the next accounting period in order to meet budgets?
Are all items included in the balance true obligations of the company?
Is the subledger reconciled to the GL?
These are just a few risks associated with this account. The level of risk will vary from company to company.
Bogyman last edited by
This question makes me feel younger, as it takes me to the good old days of Auditing 101 As far as I remember, the main risk with Trade A/P is that some balances are unrecorded or recorded at a lower amount. When it comes to Other A/P, there are more risks, but most of those still boil down to the same - unrecorded or undervalued.
NickyT last edited by
Thank you–I appreciate the feedback.
ClecoControl last edited by
Segregations of duties and fraud are a couple of key concerns that come to mind.
milan last edited by
A PowerPoint for Oracle and Accounts Payable (provides some highlights of AP and related risks):
apsig.oaug.org/256,1,Sarbanes-Oxley and Oracle Payables
Additionally, Audit Standard 2 (AS2)
from the PCAOB contains 11 references to Accounts Payable. The following is a relevant excerpt:
Alternating tests of controls. Many of the controls over accounts payable, including controls over cash disbursements, are usually not pervasive, involve a low degree of judgment in evaluating their operating effectiveness, can be subjected to objective testing, and have a low potential for management override. When these conditions describe the controls over accounts payable, the auditor could determine that, based on the nature of these controls, he or she could use the work of others to a large extent (perhaps entirely) so long as the degree of competence and objectivity of the individuals performing the test is at an appropriate level.
However, if the company recently implemented a major information technology change that significantly affected controls over cash disbursements, the auditor might decide to use the work of others to a lesser extent in the audit immediately following the information technology change and then return, in subsequent years, to using the work of others to a large extent in this area.
As another example, the auditor might use the work of others for testing controls over the depreciation of fixed assets (as described in the point above) for several years’ audits but decide one year to perform some extent of the work himself or herself to gain an understanding of these controls beyond that provided by performing a walkthrough.
Late, but hope this helps,
NC last edited by
AP is a sox nightmare
mainly becoz it involves OUTFLOW OF CASH
Is it necessary to mention here that everyone loves cash :twisted:
From a control perspective, for AP, one has to start with receipt of SO(Sale order :?: sounds weired?)
Yes i mean SO( sale order from our customer), coz ordering, purchases, invoice booking and payment are activities that flow from this( however production for STOCK may change the process a bit). The process is highly sensitive and few individuals may take advantage of the loopholes in this process like
- No SO, but stock is purchased and payments made( a gift by the purchase manager to his vendor friend)
- Excess quantity ordered by Purchase manager
- Items not required being ordered( i.e. not reqd for that SO item)
- Items ordered being discarded as scrap
- No tendering for getting the price( Purchsing dept favouring a vendor)
- Non adherence to PO terms for payment( be it advance payment or final payment)
- Booking the invoice for an excessive value
so on and so forth. The above list is only an example of what may go wrong.
Again i would like to press upon the fact that AP is highly sensitive, as it involvesoutflow of cash.
Even though, todays, ERP systems offer a lot of help in anulling a lot of the above, loopholes will remain till the human hand is involved. And a notorious human hand can be controlled only by rigid processes and sever repercussions on non- adherence to them
guess u got the point