How to Effectively Audit Accounts Payable

“We were previously coding all invoices manually, which included selecting the vendor information, invoice dates, and GL coding. We also have an incredible amount of reporting for our AP department that wasn’t available through our last program…. Document your payment policy and the payment methods (wire transfer, ACH, credit cards, payment cards, checks) your company uses to pay suppliers. Verify there are controls in place to prevent payment fraud such as shadow spend, and ensure these controls are documented and being enforced. Verify that the SOPs have been implemented and followed, and identify and correct any weak or absent internal controls. If your company doesn’t have a dedicated internal audit team, you will need to create your own.

Finance Teams

These obligations may include further penalties Airbnb Accounting and Bookkeeping (obligations) if the client delays the payments. This can be verified by reading the terms and conditions between creditors and the client. Accounts payables balances may also be misstated due to fraud or unethical behavior of the client. Fraud may result because of personal perks such as acquiring supplies for higher prices than the original price of the material and then claiming back those perks from vendors. In smaller engagements, I usually assess control risk at high for each assertion.

Treasury & Risk

Auditors can access real-time data, track accounts payable audit invoices and payments, and monitor approvals, which makes the audit process more efficient. Ensure that all transactions are properly recorded and that nothing is missing from your financial records. This includes verifying that all vendor invoices, credit memos, and payments are accounted for in the correct reporting period.

What to Look for in an AP Solution in 2024?

• So accounts payable auditing strategies are focused on fraud risk assessment standards that were set by the Auditing Standards Board of the American Institute of Certified Public Accountants.
• When undetected, these risks can damage your business’s longevity and success.
• In this case, we can perform this test by reperforming the monthly reconciliation of supplier statements to relevant payables in the accounting record.
• This intricate process further results in unapproved invoices, incomplete documentation, vendor communication gaps, and mismatched purchase orders.
• There are some occasions when the payables balance may be higher than what is presented in the ledger.
• We also calculate the ratios of accounts payable’ turnover and account payable days then compare them to the previous year and the industry data.

Whether you’re preparing for an external audit or conducting internal reviews, having a systematic approach to auditing AP can make the difference between a stressful experience and a smooth process. Perform a thorough reconciliation of AP balances, three-way matching invoices with corresponding purchase orders and bookkeeping receipts. The adoption of digital tools will significantly reduce or eliminate paperwork in the audit process. This not only makes the process faster and more efficient but also aligns with sustainability goals and reduces administrative burdens, making the transition to a paperless system more appealing.

• In their report, the ACFE said that more than half (51%) of all fraud cases occurred due to a lack of internal controls or fraudsters overriding existing controls.
• Look for software that offers automated invoice processing to reduce manual entry and minimize errors.
• When reconciling opening balances, checking if any price modifications for late(r) payments apply is important.
• They will also clarify unusual transactions and confirm that payment amounts are recorded accurately.
• Discrepancies between what vendors say is owed and what’s recorded in your books are a common sticking point.
• Your business will get a heads-up about the audit, followed by a meeting to go over standard operating procedures (SOPs).
• In addition to storing important information, automation can help facilitate an accounts payable audit.

They uncover discrepancies, unauthorized payments or errors that could impact financial statements. After thoroughly reviewing the accounts payable records, auditors compile their findings into an accounts payable audit report. This report provides a detailed audit analysis, including discrepancies, compliance issues, and improvement areas. It also includes actionable recommendations to strengthen AP processes, reduce risks, and enhance accuracy and compliance. So accounts payable auditing strategies are focused on fraud risk assessment standards that were set by the Auditing Standards Board of the American Institute of Certified Public Accountants. This process ensures that invoices and statements, as well as any other liabilities and accumulated expenses, have been properly recorded manually or in an accounting software.

Review and Update Processes Regularly

• A single accounts payable balance is extracted by accumulating these balances from different suppliers, called the accounts payable balance at the year-end.
• Their auditing methods vary according to the size of the business, the number of business transactions done over the audited period, and the level of accuracy needed.
• Tax compliance records ensure the company adheres to tax laws and regulations.
• Regularly review supplier information and documents such as contracts, quotes, estimates, SOWs, invoices, and communications.
• This eliminates the need for physical storage and facilitates collaboration across teams.
• Inherent risk is the risk that is related to the nature and complexity of the business’s transactions.

Reviewing POs on intake will help streamline reconciliation processes at this stage. Opening balances, sometimes called “carried” or “brought over,” are balances outstanding at the beginning of the current period. This means that the goods or services rendered may not be immediately obvious, as there may not be an obvious corresponding item. The importance of reconciliation is its direct impact on reporting and revenue. After initialization, the total efficiency gains were approximately 30 percent, largely due to the new ability to electronically route documents and monitor productivity using new metrics. At Pluto Card, our mission is to assist businesses of all scales make well-informed choices.

Accounts Payable Audit Best Practices

AP automation eliminates many of these errors, resulting in more accurate and reliable financial records. An AP automation software becomes a central hub for the documentation, streamlining the intricate process. Automated document capture and retrieval ensure swift access, minimizing errors. Also, it highlights areas for improvement, enabling the team to address issues beforehand.