To audit trade payables, the auditor should perform the following steps:
- Understand the entity’s trade payables and the related business processes: The auditor should obtain an understanding of the entity’s trade payables, including the nature, timing, and amount of the payables, and the related business processes, such as the purchasing and payment processes.
- Assess the risks of material misstatement in the trade payables: The auditor should assess the risks of material misstatement in the trade payables, taking into account the entity’s industry, the economic environment, the credit quality of the entity’s suppliers, and the entity’s internal controls.
- Develop an audit plan and audit procedures for the trade payables: Based on the understanding of the trade payables and the risks of material misstatement, the auditor should develop an audit plan and audit procedures for the trade payables, including the nature, timing, and extent of the audit procedures.
- Test the trade payables and evaluate the results: The auditor should test the trade payables and evaluate the results, using appropriate audit procedures, such as confirmation, observation, inspection, and recalculation. The auditor should also evaluate the entity’s accounting policies and estimates related to the trade payables, such as the accrual of unpaid expenses.
- Conclude on the trade payables and communicate the findings: Based on the audit evidence obtained, the auditor should conclude on the trade payables and communicate the findings to the entity’s management and the audit committee. The auditor should also evaluate the entity’s disclosure of the trade payables in the financial statements.
