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How to audit account payable (AP) easily

How to audit account/trade payable (AP) easily

Accounts payable (trade payable) occurred when companies purchased goods, products or services on credit from their suppliers. Companies need to control tight accounts payable to avoid fraud or error.

There may be the following mistakes that may incur:

  1. Company repaid suppliers some amounts but we recorded incorrectly. For example, payments of $2,000 are recorded $1,800 or $2,100.
  2. Suppliers are not repaid  but we recorded as payment . For example, Supplier A did not receive payment from us, but we recorded payment of $900 (i.e.).
  3. Wrong suppliers’ names are recorded. For example, we paid  of $3,000 to  ABC Company, supplier, but recorded payment to BCA Company.

We may find out  the errors or frauds above, the audit procedures for accounts payable are as follows:

1. List of accounts payable

We will request list of individual account payable of each supplier and control account of accounts payable. You may know that control accounts payable must equal sum of individual account payable.

For example, Total AP = AP, Mr.A + AP, Mr.B + AP, Mr.C + AP, Mr.D+…..+ AP, Mr.Z

2.Audit time of accounts payable

We should determine time or period for audit of accounts payable, 1 month, 2 months, 3 months, 1 year or 2 years so on. From example, we decided to audit accounts payable for 2 months from 1 November 2017 to 31 December 2017.

3.Request beginning balance and ending balance  

We will request beginning and ending balance for each account payable of each supplier. At step 2, we determined audit time from 1 November 2017 to 31 December 2017, so beginning balance is 1 November 2017 and ending balance at 31 December 2017.

4.Sample Size or Population

We should determine sample size or population to audit accounts payable. For example, we assume 26 suppliers (Mr. A, Mr. B, Mr. C,…., Mr.Z) between 1 November 2017 and 31 December 2017. How do you decide for size of auditing? If we choose sample size less than 26 suppliers, so it is called sample. For example, we decided to choose 10 suppliers among 26 customers. If we decided to choose all 26 suppliers for auditing accounts payable, so  it is called population. We often used sample than population.

5.How to select sample

At step 4, we decided to choose 10 suppliers among 26 suppliers for auditing accounts payable. How can we select these accounts payable?  If we chose Mr. A, Mr. B, Mr. C, Mr. D, Mr. E, Mr.F, Mr. G, Mr. H, Mr.I and Mr. J, and how about Mr. K, Mr. L, Mr. M,….Mr. Z?

There are many sample section methods as follows:

  • Random section
  • Value weighted selection
  • System Systematic selection
  • Block sampling
  • Judgemental/ haphazard selection

6. Soft data journal /transaction records

Different companies or organization will use different account systems. Some used Quickbooks or Peachtree while other companies used other accounting systems.

We need to request journal entry and transaction records as soft data from these accounting systems for 2 months from 1 November 2017 and 31 December 2017.

7. Hard accounting documents

Hard accounting documents are import to verify with accounting systems and accounts payable balance whether they are correct or not.  Hard accounting documents for accounts payable may be requested as follows:


  • Purchase request
  • Purchase orders
  • Quotations from suppliers
  • Contracts with suppliers
  • Delivery note from supplier
  • Goods received note
  • Invoice from supplier
  • Official receipt from supplier
  • Payment voucher
  • Daily cash report ( most important)
  • Cash book, Bank statement and bank reconciliation etc.

8.Audit Procedures and assertions

We will use audit procedure to verify accurate accounts payable and check accounting documents.

We may use the following audit procedures:







Analytical procedure

We need to know the following transactions, events and account balance assertions:

Transactions & Events:

  • Occurrence
  • Completeness
  • Accuracy
  • Cut-off
  • Classification

Account Balances:

  • Existence
  • Rights & Obligations
  • Completeness
  • Valuation & Allocation

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