ACCT 404 Week 7 Group Discussion Board Forum 4 Thread Example

Group Discussion Board Forum 4 Thread: Completeness of Accounts Payable

ACCT 404 Assurance and Attestation, Group Discussion Board Forum 4 Thread

Thread by [Student Name]

The client and its figures are composites; the textbook and the peer-reviewed research cited are real.

Westbrook Clinical Supply, a composite distributor to hospitals and clinics, closed its books on December 31 with accounts payable of $6.2 million. Its purchasing department receives several hundred shipments a month, and vendors often invoice two or three weeks after delivery. During January, Westbrook received $1.1 million of invoices for goods delivered in December. Management is under pressure to meet a margin target set by its private equity owners, and every December liability left out of the books raises reported income. Its accounts payable clerk position was vacant for most of the fourth quarter. Invoices piled up in a shared inbox during that time.

Louwers et al. (2018) explain that audit procedures must be matched to the assertion at risk. For receivables, the main risk is usually existence, whether recorded amounts are real, and confirmations address it well. For payables, the risk runs the other way. A company that wants to look more profitable leaves liabilities off the books, so the assertion that matters is completeness. Confirming the balances of recorded vendors cannot find an invoice that was never recorded. Caster et al. (2008) summarize research showing that confirmation effectiveness varies widely by assertion, and completeness of liabilities is one of the areas where its value is limited. An auditor cannot confirm a liability no one wrote down; the evidence has to come from what happened after year-end.

The search for unrecorded liabilities works from evidence created after the balance sheet date. The team examines cash disbursements made in January and February, traces each to its invoice and receiving report, and asks whether the goods or services were received before December 31. It also reviews unmatched receiving reports dated in late December and invoices still unpaid when fieldwork ends. Any item that belonged to December but never reached the ledger is a misstatement, and a pattern of such items is evidence of a cutoff weakness or of intentional understatement. The team should also ask purchasing staff about large orders in transit at year-end, because a liability can exist before any invoice does.

Appelbaum et al. (2017) argue that big data tools let auditors test whole populations rather than samples, while noting that standards on evidence have not fully caught up with those tools. At Westbrook, the team could match every January disbursement against receiving dates electronically, flagging all December receipts paid in January, and then investigate only the exceptions. That approach reaches all $1.1 million of late invoices instead of a sample. It also documents the work in a form a reviewer can rerun. For an auditor committed to truth, completeness matters as much as accuracy, because a statement that omits what is owed misleads as surely as one that invents what is earned.

References

Appelbaum, D., Kogan, A., & Vasarhelyi, M. A. (2017). Big data and analytics in the modern audit engagement: Research needs. Auditing: A Journal of Practice & Theory, 36(4), 1-27. https://doi.org/10.2308/ajpt-51684

Caster, P., Elder, R. J., & Janvrin, D. J. (2008). A summary of research and enforcement release evidence on confirmation use and effectiveness. Auditing: A Journal of Practice & Theory, 27(2), 253-279. https://doi.org/10.2308/aud.2008.27.2.253

Louwers, T. J., Blay, A. D., Sinason, D. H., Strawser, J. R., & Thibodeau, J. C. (2018). Auditing & assurance services (7th ed.). McGraw-Hill Education.