Accounts Payable Audit Procedures

Automation also builds an audit trail that won’t be misplaced or lost, keeping all data in one, protected location. It is useful to note that when selecting a sample for reconciliation of suppliers’ statements, selecting only large balances or those with many transactions are not considered appropriate. Those with small and zero balances should be included in the sample to ensure the understatement of liabilities is properly tested.

Fraud Controls

• Also, create clear channels for addressing questions or concerns as they arise, with specific protocols for requesting and sharing documentation among team members.
• If you’re doing this manually, you’ll need to focus on finding fraud in the stacks of paper documents.
• Doing an AP audit is how you make sure that all financial transactions are legitimate and properly recorded.
• The AP audit trail contains the key details that auditors use to verify the transactions, processes, changes, communications, and accounting procedures that contribute to your company’s financial records.
• We also have an incredible amount of reporting for our AP department that wasn’t available through our last program….

When performing the completeness test, auditors will also randomly select vendor statements to see if they match with the vendor account. During the audit, the auditor should test for the completeness of accounts payable. The primary method for testing the completeness of accounts payable is to search for unrecorded liabilities. Regular AP risk assessments help you protect against financial losses while maintaining strong vendor relationships and regulatory compliance.

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Adherence to contract terms and company expense policies should also be reviewed. Compliance at every stage reduces the risk of fines or legal issues and promotes accountability across departments. 3-way matching (PO, goods receipt note, and invoice) is a best practice in accounts payable.

Key Procedures to Auditing Accounts Payable

It should focus on key findings, highlight risks, and offer clear recommendations to improve processes, cut costs, and boost efficiency. Schedule the audit during a quieter period and keep your team informed to ensure a smooth process. Duplicate payments or overpaying invoices are costly mistakes that audits often catch—but only after they’ve already drained resources. While requirements vary by jurisdiction and industry, most organizations should retain audit documentation for at least seven years. However, some jurisdictions and regulated industries may require longer retention periods.

• An internal audit checklist for AP provides a comprehensive framework for conducting a thorough review of the accounts payable process and detecting any potential errors or fraud.
• The availability of timestamps in an audit trail facilitates the identification of bottlenecks and inefficiencies in the payables process.
• The report provides a comprehensive overview, detailing identified issues and areas of strength.
• While preparation may not be necessary, it can make the process go a lot smoother.
• Using the right procedures ensures your organization’s finances are transparent, accurate, and free from fraudsters.

Additionally, regulatory agencies require companies to have effective internal control systems and ensure accurate financial reporting. The consequences of these risks are not only Statement of Comprehensive Income financial but can also significantly damage the organization’s reputation, trust of stakeholders, and employee morale. Accounts payable audits do more than check off compliance boxes—they help businesses uncover inefficiencies, prevent fraud, and build stronger financial systems. For CFOs, these audits offer a real opportunity to strengthen processes, improve accuracy, and create a foundation for smarter decision-making. If SOPs are in place, auditors review them carefully and test a selection of transactions to ensure the AP team sticks to the rules. If the department lacks formal SOPs or has outdated ones, auditors pause the audit until proper procedures are created or updated.

For https://www.bookstime.com/ the sample selections, the auditor needs to obtain supporting documents such as Invoices, PO, and Payment details. Trade Payables are nothing but the accounts payable relating to the trading business. Accounts Payable Audit procedures are quite different from the testing of other liability account balances. Prior to founding AmeriQuest, Doug was President of Amtralease, a national association of independent full service truck leasing companies.

• An accounts payable audit report reflects on the success of your AP processes and related accounting procedures, identifying areas for improvement.
• An audit is checking to see you have established an internal control system that documents everything accurately and within the correct timeframe.
• A follow-up review, usually about a year later, ensures that the recommended changes have been implemented and are delivering results.
• All the supporting documents like invoices, purchase orders, payment details, and any other supporting documents (like the Receiving Department Goods receipt note) need to be requested from the client.

Implementing an automated electronic invoicing (e-invoicing) solution is the best way to tackle fraud. Automated procedures create an instant audit trail of your AP documents that make it easier to search for common indicators of fraud. If you’re doing this manually, you’ll need to focus on finding fraud in the stacks of paper documents. But if you’ve automated your accounts payable, it becomes substantially easier to avoid invoice fraud as there are safeguards built into your automated solution.

How to perform an accounts payable audit

By scrutinizing supplier contracts and payment processes, audits mitigate risks, improve operational efficiency and strengthen internal controls. Many people assume AP audits only catch mathematical errors, but they actually evaluate much more. A thorough audit examines internal controls, vendor management procedures, duty segregation, and ap audit compliance with company policies. The process looks at both individual transactions and overall system effectiveness.

• Action plans may involve updating policies, improving controls, retraining staff, and implementing automation or monitoring tools.
• A systematic audit process ensures comprehensive coverage and produces consistent, reliable results.
• However, without proper oversight, the accounts payable process can be vulnerable to errors, fraud, and inefficiencies.
• Many organizations conduct internal AP audits quarterly with a more comprehensive review annually.
• Common issues identified during an accounts payable audit include duplicate payments, overpayments, unclaimed credits, incorrect invoices, and compliance violations.
• Whether you want to reduce errors, speed up approvals, or prepare for your next audit, ApprovalMax helps you stay in control.

Access to records

During an audit, these bottlenecks are identified, allowing businesses to refine workflows. For example, using a spend management system like Alaan to track all transactions or implementing an AI-powered tool for expense verification could significantly reduce processing time and improve accuracy. Ensuring accurate records of accounts payable is critical to presenting reliable financial statements. For example, an invoice recorded with an incorrect amount might overstate expenses, reducing net income and skewing profitability metrics.

Auditing your accounts payable records and transactions

Meanwhile, you’re paying your auditor (often by the hour!) to hurry up and wait. An accounts payable recovery audit is an audit used to identify and recover AP funds paid in error such as overpayments and duplicate payments. Vendor verification involves reviewing your vendor master list to ensure that all vendors are legitimate and that there are no duplicate or fake vendor records. The audit should also verify that vendor bank account information is accurate and has not been tampered with. Coordinate with the accounts payable department and audit team to set up a suitable timeline for the audit, keeping in mind your business cycles and other obligations. Verify the accuracy and completeness of vendor information, including names, addresses, tax identification numbers, and payment terms.