Trade Payables Audit Working Paper — ICAI Audit Working Paper
(Following draft may be used as an example)
Background:
XYZ Company Private Limited (The company) is incorporated under the provisions of the Companies Act 2013, to carry on business of manufacturing, buying, selling, processing, importing, exporting and trading in all type of grocery, food, food product, dairy product, bakery and confectionary product whether as owner, co-owner, joint venture, operator, franchisee or any other business model. The company is engaged in the process of supplying raw materials of food, food product, dairy product, bakery, and confectionary product.
Structure:
The structure of the company is such that the company purchase raw material from the outside parties as per the requirement raised by the customer (majorly the related parties) and supply the products to the related parties, who further process the same and supplies the food.
Purpose:
The purpose of this work paper is to document the overall work done on trade payables.
Work Done:
Kick-off Procedures
- The list of the creditors during the year was obtained along with the ageing schedule.
- The list of trade payables party wise balances obtained classifying between disputed and undisputed and MSME and Non-MSME.
- The ledger dumps of the parties were obtained.
- The list of the parties to whom confirmations shall be sent, on the basis of the significance of the balances were identified.
- The aging of trade payables was not provided by the client, however the same was extracted from the accounting software.
Assertions and Potential misstatements
| Assertion | Potential misstatements | How the same was checked |
|---|
| Existence &
Occurrence | To establish the existence of trade payables and other current liabilities in the books and in actual as at the period end. | 1) While checking the purchases and expenses, accounting entries in respect of crediting the party account was checked to ensure correct recording of trade payables.
2) The total trade payables balance from the aging is reconciled with the general ledger.
3) Direct confirmation procedures
The standard confirmations were sent to the parties in order to confirm the amount of trade payables as at the end of the reporting period. |
| Completeness | Trade payables and liability Balances that were supposed to be recorded have been recognized in the financial statements. | The cut off procedures were performed to reach on to a conclusion regarding the completeness of the balances at the year end. The invoices received closer to the reporting date, were reviewed if the risks and rewards have been transferred in favour of the entity. |
Analysis:
Analysis of Trade Payables has been done according to two basics:
- Total trade payable variance analysis
- Total trade payable analysis
This procedure was performed along with the analytical procedures performed for the other balance sheet and P/L items.
Confirmation Control Chart
External Confirmations have been sent to the parties to confirm that the closing balances as per parties are in agreement with that of the books of account of the company. Confirmations have been sent to all the parties. The provisions as mentioned in SA 505 have been duly followed. As this is received directly from third party it increases the reliability of audit evidence and becomes an important audit procedure. Confirmation tracker for the same has been maintained.
Subsequent status
Considering the ambience of the parties, the parties did not respond over mail or to the confirmations sent to them in the hard copy. Hence, to verify the authenticity of the balances the subsequent status was verified.
Balance Confirmation Reconciliation
This procedure is to be only performed when there is a difference between amount sent for balance confirmation and the balance confirmed.
Conclusion:
Confirmation was not received from many parties, however the same was concluded through the subsequent checking.
