## Audit of Trade Payables & Other Liabilities – Existence & Confirmation
### The Core Risk for Payables
Unlike receivables (where the risk is overstatement), for payables the key risks are:
- Understatement — liabilities omitted to improve the balance sheet appearance (completeness risk).
- Overstatement — fake liabilities recorded (existence risk).
However, the procedures below address the existence assertion specifically.
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### Step-by-Step Procedures for Existence of Trade Payables
#### Procedure (i) – Review Internal Controls
Check whether controls ensure:
- No purchase/expense recorded twice (duplicate payable risk).
- Payable balance is automatically created at the time of recording the expense — reducing risk of manual manipulation.
#### Procedure (ii) – Accounts Payable Ageing Report
- Obtain the Accounts Payable Ageing Report as at the balance sheet date (31/3).
- Trace the total balance to the General Ledger.
- Investigate any differences found — these may indicate suppressed or inflated payables.
#### Procedure (iii) – Related Party Payables
For amounts payable to related parties, review:
- Whether the transaction has proper authorisation from appropriate management.
- Whether the price is at arm's length (same as what would be charged by an unrelated supplier).
#### Procedure (iv) – Trend Analysis
- Review the trend line of purchases and expenses over time.
- Identify any unusual fluctuations — a sudden drop in payables at year-end may indicate liabilities have been omitted.
- Make inquiries to management about any identified unusual trends.
#### Procedure (v) – Direct Confirmation Procedures
Confirmation of payables is covered under SA 505 – External Confirmations.
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### Trade Payable Confirmation – Detailed Guidance
#### When to Use Confirmation for Payables:
| Situation | Confirmation Recommended |
|---|---|
| Suppliers with significant payable balances at 31/3 | Yes |
| Suppliers with material transactions during the year even if year-end balance is low | Yes — low closing balance with high activity can indicate unrecorded liabilities |
> Note: A low year-end balance does NOT mean the supplier relationship is unimportant — a supplier who had large transactions during the year but shows a near-zero closing balance may have been paid or may have a liability that was suppressed.
#### Date of Confirmation:
- Ideally at 31/3 (balance sheet date).
- Alternatively, at a nearby date decided by the auditor in consultation with management.
#### Form of Confirmation: Positive or Negative
- Positive form: Supplier must reply — used for higher-risk balances.
- Negative form: Supplier replies only if they disagree — used for lower-risk, lower-value balances.
#### When No Reply is Received:
Perform additional/alternative procedures:
a) Subsequent Payment Testing
- Check whether the balance was paid after year-end — subsequent payment confirms the liability existed.
b) Agree Details to Vendor Invoices
- Agree the recorded balance to underlying vendor invoices — each invoice should reconcile to the payable balance.
c) Detailed Balance Analysis
- Perform a detailed analysis of the balance.
- Ensure every identifiable transaction (purchase/expense) has actually occurred — i.e., there is documentary evidence that the goods or services were received.
- Examine depth of documentation (delivery challans, goods receipt notes, service completion certificates).