Peach Blossom Company #6 - Case Study

Course:

Auditing (ACC418)

AP-5
Peach Blossom Cologne
Company
Audit
Program
Accounts Payable Balances and
Unrecorded
Liabilities
Existence or Occurrence

Obtain or prepare a schedule of
accounts payable at year-end.
 Examine invoices to support
each voucher determining that
each is applicable to the current
year.
 Trace each voucher to
subsequent payment to determine
that each was paid after year-end.
Completeness
 Confirm accounts payable.
Review confirmation replies and
vendor statements. Investigate
unusual amounts and past due
balances.
 Perform a search for unrecorded
accounts payable:
o Review vouchers (accounting
for all serial numbers) from
audit date to several days
after year-end to ascertain that
none of subsequent month's
accounts payable were
applicable to the current year.
o Review unmatched vendors'
invoices, unmatched receiving
reports and open purchase
orders for several days after year-
end.
o Review the cash disbursements
journal from audit date to several
days after year-end.
 Perform search for other
unrecorded liabilities:
o Review analyses of operating
accounts such as interest
expense and legal fees looking
for possible unrecorded note
obligations, litigation
contingencies, etc.
o Review minutes from meetings
of Board of Directors for debt
authorization or other
liabilities.
o Review bank confirmations for
possible note liabilities.
o Obtain written representation
from client's management
regarding liabilities.
o Obtain letter from client's
attorney concerning pending
litigation, if any.
Valuation or Allocation
 Recalculate footings of
schedule obtained in step 1 and
trace total to trial balance.
Rights and Obligations;
Presentation and Disclosure
 Investigate any accounts with
officer, affiliates, or
subsidiaries for evidence of
related
party transactions.
 Consider reclassifying any debit
balances.
 Review vouchers for proper
account classification.