## Audit of Trade Payables: Valuation

### The Valuation Assertion

Valuation means trade payables are recorded at correct amounts — no overstatement or understatement caused by stale balances, disputes, or wrong exchange rates.

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### Procedures

#### 1. Obtain Ageing Analysis of Accounts Payable

Get a vendor-wise ageing schedule.
Identify old / long-outstanding creditor balances.
Investigate why balances remain unpaid — genuine, disputed, or should be written back?

#### 2. Review Old Creditor Write-backs

Check the company's policy for writing back old creditor balances.
Ensure every write-back has proper approval from management.
Verify there are no arbitrary write-backs used to inflate profits.

#### 3. Foreign Currency Restatement

Identify payables denominated in foreign currencies.
Verify they are restated at the closing exchange rate at year-end (AS 11 / Ind AS 21).
Check that exchange differences are correctly charged/credited to P&L.

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### Summary Table

Procedure	Risk Addressed
Ageing of A/P + vendor list (disputed)	Stale / fictitious balances
Write-back approval check	Profit manipulation
Foreign currency restatement	Incorrect carrying amount

Worked example

### Example 1

Stale balance: The ageing report shows a vendor balance of ₹15 lakhs outstanding for over 3 years. There is no dispute, no recent activity, and no vendor confirmation. The auditor concludes this balance should likely be written back as income — management is asked whether proper approval was obtained.

### Example 2

FX restatement: A payable to a US supplier is recorded at ₹80/$ (transaction date rate). At 31 March the rate is ₹84/$. The auditor verifies the balance has been restated to ₹84/$ and the exchange loss of ₹4 per dollar is recognised in the P&L. Missing this restatement understates both the liability and the exchange loss.

⚠️ Common exam mistakes

Accepting the A/P ledger balance at face value without reviewing the ageing — old dormant balances may be fictitious or overdue for write-back.
Forgetting to check foreign currency restatement — a frequent practical omission that misstates payables.
Not verifying management approval for write-backs — arbitrary write-backs can window-dress profits.
Treating a creditor write-back as a routine adjustment rather than requiring supporting documentation and authority.

Reference:

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Audit of Trade Payables – Valuation

Worked example

⚠️ Common exam mistakes