Assume that your understanding of internal controls over acquisitions and cash disbursements and the related tests of controls and substantive tests of transactions support an assessment of a low control risk. The listing of the 519 accounts making up the accounts payable balance of $12,969,686 at December 31, 2011.
Study Table 19-5 below containing balance-related audit objectives and tests of details of balances for accounts payable to be sure you understand each procedure and its purpose. Prepare an audit program for accounts payable in a performance format, using the audit procedures.
TABLE 19-5 Analytical Procedures for Income and Expense Accounts
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Analytical Procedure
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Possible Misstatement
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Compare individual expenses with previous years.
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Overstatement or understatement of a balance in an expense account.
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Compare individual asset and liability balances with previous years.
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Overstatement or understatement of a balance sheet account that will also affect an income statement account (for example, a misstatement of inventory affects cost of goods sold).
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Compare individual expenses with budgets.
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Misstatement of expenses and related balance sheet accounts.
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Compare gross margin percentage with previous years.
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Misstatement of cost of goods sold and inventory
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Compare inventory turnover ratio with previous years.
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Misstatement of cost of goods sold and inventory
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Compare prepaid insurance expense with previous years.
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Misstatement of insurance expense and prepaid insurance.
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Compare commission expense divided by sales with previous years.
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Misstatement of commission expense and accrued commissions.
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Compare individual manufacturing expenses divided by total manufacturing expenses with previous years.
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Misstatement of individual manufacturing expenses and related balance sheet acco
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