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I. Initial Procedures- 1. Understand Business -
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A. Significance of accounts payable to businessb. Standard trade terms of industry
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I. Initial Procedures- 2. Risk Factors -
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A. Reliance on certain suppliersb. Purchase commitments
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II. Analytical Review
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1. Develop an expectation for accounts payable (knowledge of bus. activity, industry, historical trends2. Accounts Payable Turnover Ratio (Puch / Accts Payable) - compare to previous years and industry3. Compare actual to budget, actual to industry
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III. Test of Detail of Transactions - 1. Occurrence -
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Vouch accounts payable credits to supporting vouchers or receiving reports
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III. Test of Detail of Transactions - 2. Completeness -
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Search for Unrecorded Liabilities:a. Examine subsequent payments after year end and supporting docs (voucher, receiving report). If obligation was before year end, trace to accounts payable listingb. Confirm zero or non-existent accounts that had high activity during the period
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III. Test of Detail of Transactions - 3. Authorization -
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A. Test a sample of purchase requisitions for proper authorizationb. Review dollar limits for authorizing purchase requisitions
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III. Test of Detail of Transactions - 4. Accuracy -
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A. Recompute mathematical accuracy on sample of vendor invoices
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III. Test of Detail of Transactions - 5. Cutoff -
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Test a sample of accounts payable around year-end by examining supporting receiving reports and vouchers to determine if recorded in the proper period
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IV. Test of Detail of Account Balances- 1. Existence -
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Confirm accounts payable balances with suppliers
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IV. Test of Detail of Account Balances- 2. Completeness -
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1. Agree accounts payable subsidiary to general ledger2. Search for Unrecorded Liabilities: a. Examine subsequent payments after year end and supporting docs (voucher, receiving report). If obligation was before year end, trace to accounts payable listing b. Confirm zero or non-existent accounts that had high activity during the period
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IV. Test of Detail of Account Balances- 3. Rights and Obligations -
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Confirm accounts payable with suppliers
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IV. Test of Detail of Account Balances- 4. Valuation and Allocation -
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Test a sample of accounts payable by tracing to voucher packet (recomputate)
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V. Presentation and Disclosure- 1. Occurrence and Rights and Obligations -
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A. Examine financial drafts to determine that disclosures properly conform with GAAP, all necessary disclosures have been made. b. Must be classified properly, such as short-term and long-termc. Footnotes must be understandabled. Disclose accounts payable to related parties
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