Audit Procedures for Accounts Payable

Accounts payable (AP) is the money you owe to vendors or suppliers for goods and services received on credit. Since AP is a liability, it is recorded as a credit on financial statements. When you buy on credit, your accounts payable balance increases, which is a credit entry.

Core AP audit procedures

• Some states allow public companies to push extra reports that don’t need to follow GAAP standards or rules.
• Additionally, Airbase’s dedicated fraud investigation team monitors activity 24/7, ensuring swift action and transparency in financial reporting, all of which support audit readiness.
• An auditor will then use an audit trail to match payments to recorded payables and look for any files with unmatched documents.
• Investigators examine the department’s Standard Operating Procedures (SOPs) in detail and assess how closely employees follow them.
• However, there are times when accounts payable can show a debit balance instead of the usual credit.
• The timing depends on the volume of invoices, internal controls, and the level of vendor oversight in place.

When auditing accounts payable, auditors must ensure that everything that should be present is indeed there. This includes verifying that all invoices and payments are accurately recorded and that no transactions are missing from the records. The final stage focuses on implementing the recommendations outlined in contra asset account the audit report. Auditors collaborate with the organization to ensure corrective actions are taken to address any gaps identified during the audit. They may also provide additional reviews or training to help the AP team implement better practices. Follow-ups are crucial for ensuring that improvements are sustained and that the company’s accounts payable processes remain robust and efficient.

Strengthen Vendor Relationships for Better Partnerships

Our expert team will analyze your financial processes and provide actionable strategies to help you save up to 70% on operational costs. Audits are typically performed on high-value invoices, those from new vendors, or as part of a periodic accounts payable audit spot check. In this case, the invoice is selected because it exceeds your audit threshold and the vendor is relatively new.

Benefits of Automating the AP Audit Process

Without proper oversight and regular checks, accounts payable can turn into a source of financial complexity and risk. By ensuring that accounts payable processes are accurate, safe, and compliant, you can keep the financial gears of your business running smoothly. A traditional accounts payable audit can be a daunting task for organizations as they are Bookkeeping for Veterinarians often a stressful and resource-intensive process. However, by properly preparing financial documents and utilizing efficient solutions, your business can ease the burden and improve the outcome of an audit.

• The audit should also verify that vendor bank account information is accurate and has not been tampered with.
• Accounts payable show up on your balance sheet as a current liability, which affects your working capital.
• Therefore, these audit procedures will help the auditor outline any discrepancies.
• If your company doesn’t have a dedicated internal audit team, you will need to create your own.
• Inadequate internal controls over the accounts payable transactions and processes can result in a plethora of problems, ranging from duplicate payments to a lack of segregation of duties.

Accounts Payable Audit Phase 3: Reporting

• They also help assess the strength of your AP processes and internal controls, highlighting areas for improvement.
• Auditors reconcile this ledger with the company’s general ledger to confirm that all liabilities are accurately recorded.
• This process helps businesses keep track of what they owe and stay on top of their financial responsibilities.
• An accounts payable audit helps catch these errors early, minimizing the chances of financial misstatements or fraudulent activity.
• Verify that the SOPs have been implemented and followed, and identify and correct any weak or absent internal controls.
• After their investigation, the auditors will prepare and present an audit report summarizing their findings and recommendations.
• This helps ensure that vendor payments are made on time, which is crucial for maintaining positive relationships with suppliers and avoiding late payment penalties.

Ramp helps you improve both by automating the entire lifecycle of an invoice, from intake to payment. Without the right safeguards, your company could join the thousands of businesses that lose money to fraud each year. With an average loss of $1.7 million per case, preventing fraud is not a risk many businesses can afford. When it comes to simplifying your accounts payable audits, automation and an effective upstream procurement process can make all the difference.

Are You Picking the Right AP Automation Software for Your Business?

If you identify internal control weaknesses, you must create audit procedures to address them. For example, say you find out one person prints checks, signs them, records payments, and reconciles the bank statement (i.e., there’s a lack of segregation of duties in AP). Accounts payable is more than just keeping track of bills; it plays a big role in your business’s cash flow. By managing AP properly, you can balance your cash while making sure payments are made on time.