1. A proper system of requisitioning, purchase order placement and approval, receiving, invoice approval, and approval for payment should be well-defined and established.
2. Subsidiary accounts payable records or unpaid vouchers should be reconciled with controlling account at frequent intervals.
3. Check mathematical accuracy of suppliers' invoices prior to recording.
4. Adjustments to accounts payable should be properly approved.
5. Debit balances in accounts payable should be reviewed and resolved.
1. Borrowings on notes payable should be properly authorized. Specify the institutions from which money may be borrowed and designate the officers authorized to sign notes.
2. Unissued notes should be properly safeguarded.
3. Subsidiary notes payable records should be reconciled with controlling account at frequent intervals.
4. Subsidiary notes payable records should be reconciled with controlling account at frequent intervals.
5. Paid notes should be properly cancelled and preserved.
1. Long-term obligation should be properly authorized by the board of directors or by a required majority of the shareholders.
2. There should be proper control over issued and unissued obligations as in bonds, by an independent bond trustee or transfer agent.
3. Redeemed bonds should be cancelled, property mutilated and retained for audit in order to prevent unauthorized issuance.
4. Bond ledger should be used in which details of bond issued, cancelled and outstanding are shown. A subsidiary bondholder's ledger should also be maintained by the issuing corporation or the bond trustee for bonds registered, as to principal and interest.
5. Proper control should be exercised over the payment of interest on long-term liabilities. Payment may be done by an independently engaged interest-paying agent.
Substantive Audit Procedures for Liabilities
Existence: Recorded liabilities exist
1. Obtain from the client a listing of accounts and notes payable as of year-end and reconcile to the general ledger.
2. Vouch recorded liabilities to the suppliers' statements.
3. Confirm recorded liabilities directly with suppliers and creditors. Investigate differences in liabilities reported in the confirmations with the recorded book amounts.
4. Examine bank confirmations for loans.
Completeness: All liabilities are recorded
5. Perform purchases cutoff examination.
6. Test unrecorded liabilities.
7. Perform analytical procedures.
Rights and obligations: Liabilities are owed by the entity
8. Confirm recorded liabilities directly with suppliers and creditors.
9. Review documentation in client's files.
10. Examine subsequent payments to credits.
Valuation and allocation: Liabilities are valued in accordance with GAAP
11. Vouch accounts payable schedule.
12. Test computation of accrued or prepaid interest.
Presentation and disclosure: Liabilities are classified and disclosed in accordance with GAAP
13. Review financial statements and and perform analytical procedures to determine whether accounts are classified and disclosed in the financial statements in accordance with GAAP.