The risk in accounts payable is understatement. The audit question is what the client owes that it has not recorded. Confirming the vendors on the client's ledger answers a different question, because the list of recorded vendors is the list the client chose. This post sets out how to select vendors, what form of confirmation to send, how to reconcile statements and how to combine the work with the search for unrecorded liabilities. See search for unrecorded liabilities and the general guide to audit confirmations.
Choosing between confirmation and statements
Many vendors send monthly statements. A vendor statement is evidence from outside the client, though it did not come directly to the auditor in response to the auditor's request. Treat it as a supporting source, not an equal of a confirmation. A direct confirmation is stronger. Which one to rely on depends on the risk and on what the vendor provides.
| Source | Strength | Common limit |
|---|---|---|
| Direct confirmation to the auditor | Highest | Vendors respond slowly; many do not respond at all |
| Vendor statement obtained by the client | Medium | Passed through the client, so alteration is possible |
| Vendor statement obtained by the auditor from the vendor | Higher | Requires a request to the vendor |
| Subsequent disbursements and invoices | Medium | Show items paid but not items missed |
Use a blank or partially blank request
A confirmation that prints the client's balance invites the vendor to agree without checking. For payables, where the concern is completeness, ask the vendor to state the balance owed and attach a statement of open invoices. This is a form of positive confirmation with the amount left blank. It costs more effort for the vendor and gives better evidence on understatement. A balance printed on the request tests the recorded amount for overstatement, which is not the main risk for payables.
If vendors are unlikely to complete a blank request, send the request with the balance and ask for a statement, and be skeptical of vendors who agree without a statement.
Selecting vendors
Do not select only from the larger recorded balances. Include:
- Vendors with large purchase volumes during the year, even if the year-end balance is small or zero. A vendor the client buys heavily from, with a zero balance at year end, is a candidate for unrecorded liabilities or for early payment.
- Vendors with large balances.
- Vendors with unusual patterns: a sharp drop in purchases, a new vendor late in the year, a vendor with a disputed account.
- Vendors with no balance but material purchase activity. Use the vendor activity report, sorted by annual purchases, not the aging.
- Related parties and affiliates, which may have unrecorded intercompany items.
- Utilities, rent, professional fees and benefit providers, where accruals depend on estimates.
Stratify by purchase volume and select systematically, plus targeted items.
Reconciling a vendor statement
For each statement received, prepare a reconciliation:
| Line | Amount |
|---|---|
| Balance per vendor statement at year end | 89,300 |
| Add: invoices recorded by the client but not yet on the statement (goods in transit, timing) | 6,200 |
| Less: payments sent by the client before year end, not yet received by the vendor | (12,000) |
| Subtotal: statement balance adjusted for timing, which is what the ledger should show | 83,500 |
| Less: invoices dated before year end, on the statement, not recorded by the client | (9,800) |
| Add: credit memos on the statement, not recorded by the client | 2,400 |
| Balance per client ledger | 76,100 |
The ledger should read $83,500. The unrecorded invoices of $9,800 less the unrecorded credit of $2,400 leave payables understated by a net $7,400.
The unrecorded invoices are a misstatement unless explained. Test each reconciling item: the invoice date, the receiving report, the payment date and the cleared check.
What unrecorded items look like
| Pattern | Likely cause |
|---|---|
| Invoice dated December, received in January, recorded in January | Cutoff: receiving report shows goods received in December |
| Services performed in December, billed in January | Accrual missing |
| Vendor statement shows items the client rejected | Dispute; assess the liability |
| Large credit on the vendor side | Client over-recorded or prepaid |
| Items on the statement for a vendor not on the client list | Possible unrecorded vendor |
Link to subsequent disbursements
Review disbursements after year end for items that relate to the earlier period. Compare to the confirmations and statements. If a January payment is for a December invoice that is not in payables, it is a misstatement. If a vendor with no confirmation response has no payments after year end, test other evidence: receiving reports and purchase orders. See PBC requests for liabilities.
Worked example
A client has 340 vendors and payables of $2.9 million. The auditor selects 25 vendors: the 12 largest balances, 8 with the highest annual purchases and low or zero year-end balances, and 5 targeted. Blank confirmations go to all 25. Results:
- 14 replies reconciled with no difference.
- 6 replies with differences, all explained by timing or payments in transit, except one: a supplier of packaging shows $41,000 in invoices dated December 14 to 30 not recorded. Receiving reports confirm delivery on those dates.
- 5 no replies. The auditor reviews the subsequent disbursements and vendor statements the client holds, and finds an additional unrecorded $7,500 for a freight vendor.
The two unrecorded items total $48,500 and go on the adjusting entry log. Both came from vendors with small or zero recorded balances, which supports the choice of selection by activity. Because a pattern appeared, the auditor extends the search for unrecorded liabilities to the receiving-report file. The weakness is a deficiency in the period-end close for the evaluation of AU-C 265.
Limits
- Vendors may not reply, and some do not issue statements.
- A vendor may omit items it has not yet billed.
- Confirmation does not test completeness of vendors the client did not record at all. For that, use receiving reports, purchase orders, subsequent payments and the unrecorded liabilities search.
Documentation
The file shows the selection method and the vendor list, the request, the log, the reconciliation for each reply or statement, the investigation of differences, the proposed entries and the conclusion on completeness.
CORAA prepares ready-to-review audit files for US CPA firms; the firm keeps the client, the review and the signature. See /us.
Sources
- AICPA, AU-C Section 505, External Confirmations; AU-C Section 500, Audit Evidence
- AICPA, AU-C Section 330, Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained
- U.S. Government Accountability Office, Financial Audit Manual, Volume 1 (GAO-26-108577), June 2026, section 470 (external confirmation of balances such as accounts receivable or payable): gao.gov
Part of CORAA University · Evidence and audit procedures: related guides, calculators and templates.
AU-C references are to AICPA Professional Standards, paraphrased here; read the standard itself before relying on a requirement. This page is guidance, not professional advice. Report an error