CPA Exam — AUDPerforming Further Procedures and Obtaining EvidenceMedium
An auditor is testing the completeness assertion for accounts payable. Which of the following procedures would be most effective?
- AExamining cash disbursements made subsequent to the balance sheet date.
- BConfirming accounts payable balances with a sample of major vendors.
- CVouching recorded accounts payable to supporting vendor invoices.
- DComparing the current year's accounts payable balance to the prior year's balance.
Show answer & explanationAnswer & explanation
Correct answer: A. Examining cash disbursements made subsequent to the balance sheet date.
Examining cash disbursements made after the balance sheet date for payments related to prior-period liabilities (unrecorded liabilities) is a highly effective procedure for detecting understated accounts payable, thereby addressing the completeness assertion.
Why the other options are wrong
- B. Confirmations primarily test existence and rights and obligations, and may not identify unrecorded liabilities if the auditor doesn't know which vendors to confirm.
- C. Vouching recorded payable to invoices tests existence (whether recorded payables are valid), not completeness (whether all payables are recorded).
- D. Comparing balances is an analytical procedure, which is useful for identifying unusual fluctuations but is not as precise for detecting specific unrecorded liabilities as examining subsequent disbursements.
Completeness for Accounts Payable
The completeness assertion for accounts payable means that all liabilities that should have been recorded have been recorded.
- Focuses on understatement risk (unrecorded liabilities).
- Key procedure: Search for unrecorded liabilities.
- Often involves examining subsequent cash disbursements.
Memory trick: Look FORWARD in time to find the HIDDEN debts.