Your audit firm, Kimani and Associates has been contracted by the government to audit the procurement system followed by the government. Required; Outline the audit procedures an audit firm should follow in the verification of a manufacturing company‘s liabilities

Audit procedures for audit of liabilities
– Obtain a schedule of payables, with appropriate age analysis and check this with the control account and purchase ledger
– Separate debit and credit balances, debit balances being included in receivables. This is called grossing up
– Review the individual accounts with the largest throughput of transactions during the period – not necessarily the largest balances at the end of the year
– Review year end cut off procedures for purchases
– Review internal control over purchase system which ensures that all goods received are properly recognized as liabilities of the company
– Select a sample of supplier balances which should be based on the reciprocal of purchases turnover in which case monetary sampling unit should be used.
– Check whether all the liability balances are made up of specifications outstanding within a reasonable period
– Check whether all items have been authorized for payment
– Agree the liability amounts, reconcile with supplier statements
– Consider the need to perform a circularization of accounts payable, seeking direct confirmation of amounts due
– Review payments to payables and other liabilities just after the year end
– Perform analytical procedures on payables, comparing age analysis with previous periods and payable days. = (payables/cost of sales) x 365

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