The purpose of auditing firms is to expose frauds, mistakes, and other problems that can jeopardise the future and image of a company. If performed correctly, an audit will not only confirm that you are playing by the rules, but it will also demonstrate that you can effectively run your business. In the past, companies paid external auditors to spend days, if not weeks, checking through their documentation and accounting books. This practice, however, is a thing of the past. Nowadays, more and more businesses are using specialised software solutions that enable them to conduct a full-scale audit just by pressing a button! Regardless of the method you choose, an audit is beyond any doubt beneficial for your company.
But What Is an Accounts Payable Audit?
Basically, an accounts payable audit is an independent and systematic examination of a company’s or organization’s accounting. It checks whether all transactions during the last year/s are properly recorded and whether those records give an accurate view of a business’ financial health. A well-prepared and detailed audit report will tell you how your company is performing and where it can improve.
Indicators of a Successful Audit
Auditing accounts payable, whether as a standalone process or as part of an internal audit, is a crucial tool against the war on tax and expense fraud, duplicate payments, unrecorded transactions, and other financial violations. For U.S companies or foreign organizations dA
- Verification of a correctly drafted and presented end-of-year financial statement. The veracity of the annual report is of paramount importance as it showcases strategic forecasting, procurements, and the financial health of a company. Any and all unusual transactions are documented, contextualized, and clarified by both the management and AP departments before the end of the audit.
- Verification that the accounts payable is fully compliant with GAAP (Generally accepted accounting principles). Auditors form an audit trail by examining annual and/or end-of-period reports, balance sheets, and income and cash flow statements and tracing general ledger entries back to the day and time they were created. This procedure will reveal any weakness in the accounting system and areas where compliance can be ameliorated.
- Verification of legitimacy and accuracy of all reported transactions. Auditors will contact a company’s entire roster of suppliers, regardless of whether it has an outstanding balance or not. The goal is to check the data on registered transactions with the vendors during the audited period. This helps with the discovery of material misstatements and incorrect financial data that affect planning, reporting, and other decisions made by those using it.
- Verification of payments. The value of the recorded payments should match the value in the invoices provided by the suppliers, contractors, and other business partners. Correctly registered transactions should have no discrepancies. If any inconsistencies are discovered during the audit, the financial data is subjected to rigorous scrutiny until a legitimate and reasonable explanation is discovered and/or provided.
Steps During an Audit
Generally, an accounts payable audit is executed in four distinct steps:
The first step is to schedule a meeting with the management, stakeholders, and or board of directors to discuss the scope of the audit and the desired outcomes. This meeting is recorded and the paperwork is given to the auditors who usually use it as an additional checklist during fieldwork, reporting, and post-audit reviews.
Once a plan is drafted, the auditors will devote all their energy to the auditing process. They will most likely review a company’s standard operating procedures, compare budget reports from prior years, review original documents such as invoices, purchase orders, inventory, bank statements, etc.; examine monthly, trimestrial, and annual financial reports, and search for suspicious activities in case the numbers don’t match.
When the audit is complete, the auditors will put the collected data and their discoveries in a report, which will be presented to the management and other stakeholders for review.
Each and every audit has a follow-up inspection which is conducted one year after the audit. The purpose is to verify whether the recommended changes have been implemented by the company.
The entire process can be much easier and less time-consuming if a comprehensive procurement software solution that included AP automation is used.