Examination of

Audit of Exam Date

Done
Audit Procedures Period By

Accounts Payable

The primary audit objectives are to determine whether:

1. Purchased goods and services have been received and are

for corporate purposes;
2. Proper distribution of costs to asset, expense, capital, and
other accounts has been made;
3. All liabilities for goods and services received are recorded;
4. Costs and expenses are not misstated by processing errors;
and
5. Cash disbursements are valid and have been properly
approved and recorded.

EXPENSE DISBURSEMENT TEST:

1. Determine the beginning and ending check number of each

sequence used during the credit period. Using random
selection, select a sample of expense checks. For any checks
selected which were voided, select a replacement but verify the
check was adequately voided.

2. For the checks selected above, perform the following:

a. Examine invoices, vouchers, requisitions and/or receiving

reports supporting the disbursement. Also, compare the
canceled check to the check copy as to number, date, payee
and amount.
b. Determine invoices were properly approved for payment.
c. Inspect canceled checks for proper authorization signatures
and endorsements or alterations.
d. Ascertain that invoices and supporting documentation were
effectively canceled upon payment.
e. Trace paid invoices back to purchase orders, if applicable, or
approved requisitions/check requests and note compliance
with ordering policy procedures.
f. Test the mathematical accuracy of purchase orders and/or
invoices. Determine if any purchase discount was available,
but not taken.
g. Test the proper distribution of costs to asset, expense,
capital and other accounts based upon invoice descriptions,
purpose and corporate capitalization guidelines.
h. Trace disbursements to the accounts payable journal and
check register noting agreement of amount and general
ledger account distributions.
i. Trace the daily totals from the accounts payable journal to
same day posting in the appropriate general ledger accounts
and trace the credit to the official checks DDA account on
date of disbursement.
j. Determine that G/L entries require supervisory approvals
prior to processing. Test compliance by tracing a few
disbursements to the processed G/L tickets in file.
k. Investigate disbursements of a non recurring type or of an
unusual nature.

3. Observe, on several days selected at random during the field

work, whether paid invoices and approved check copies are
reviewed by a person independent of the Accounts Payable
Department.

4. Observe, on several days selected at random during the field

work, whether an independent verification is made to account for
all manual checks used each day via usage of signature
machine compared with check copies. Consider inspecting and
testing the records of the independent verifier.

5. For periods not selected for detailed testing, scan voucher and
check register for unusual items and investigate.

1
Examination of

Audit of Exam Date

Done
Audit Procedures Period By

TEST OF T & E REPORT:

6. Select bank officers from various departments and obtain all

time and expense reports for them during the audit period.
While performing the following procedures, be alert as to any
policies which management might implement to reduce
expenses of the Bank.

a. Determine all expenses are adequately supported with

receipts, etc.
b. Test the mathematical accuracy of the report.
c. Determine adequate approval was obtained of department
head and other required officers.
d. Review T & E reports for the reasonableness of expenses.
Also, determine the amount spent by officers on in-town
meals - when customers are not being entertained.
e. Test for compliance with travel and entertainment
requirements under new tax laws regarding support,
deductibility, etc.
f. Trace the reimbursement for personal expenses to check
copy received from officer. Also, review club membership
bills, etc., for expenses by these officers which would not
appear on their expense reports.

7. Test validity of general ledger A/C balance to underlying

documents by obtaining open invoice file and comparing those
unpaid invoices with the vouchers payable by vendor report. For
A/C examine automated check copies and trace to debit entry in
the account on the next business day. (It is possible that two or
more days check and vendor register totals will be needed to
balance the account.)

8. Examine any open invoice file and compare those unpaid

invoices with the requisitions. Note any unusual or large open
invoices.

9. Examine any open purchase orders and review for unusual or

large open purchases. Inspect for unrecorded liabilities of a
material amount.

10. Consider sending fictitious invoice to accounts payable to

determine if it will go through the approval process "undetected".

11. If considered necessary, test principal accounts for fictitious

suppliers and addresses by reference to independent sources
(e.g., telephone directories, Dun and Bradstreet, etc.).

12. Review A/P reconcilement for most recent month-end prior to

audit dates.
a. Note agreement of amounts to journal and G/L,
b. Determine that reconcilement complies with reconcilement policy
(prepares initials, dated, reviews initials, etc.)

13. Review procedures for the Accounts Payable G/L account

reconcilement's.

14. Test a sample of reconcilement's prepared during the audit

period for compliance with internal control procedures.
a. Prepare initials and date reconciliation prepared.
b. Appropriate reviews initials.
c. Adequate description on reconciling items.
d. No reconciling items older then allowed by policy.