Audit and Assurance · The audit of specific items

Audit of Payables and Completeness of Liabilities in ACCA Audit and Assurance

Updated 11 October 2026 · Fact-checked

Auditing payables focuses on completeness: are all liabilities recorded? You test this by reconciling supplier statements to the ledger, searching for unrecorded liabilities after the year end (payments, invoices, goods received notes), and reviewing accruals. The main risk is understatement, so you start from outside the ledger.

Understand Audit of Payables and Completeness of Liabilities

Payables are amounts the company owes to suppliers for goods and services received. Under IFRS they are liabilities. The key audit risk is different from receivables. With receivables the worry is overstatement. With payables the worry is understatement, because management may leave out liabilities to make profit look higher and the company look less indebted.

This is why completeness is the main assertion. Completeness means all payables that should be recorded are recorded. Other assertions matter too: existence (recorded liabilities are real obligations), rights and obligations (the company really owes them), accuracy, valuation and allocation (correct amounts and currency translation) and cut-off (recorded in the right period).

To test completeness you cannot just pick items from the payables ledger. That only tests items already recorded. You must start from independent sources and trace to the ledger. Examples are supplier statements, post year-end payments, goods received notes (GRNs) around the year end and purchase orders outstanding.

Supplier statements are external evidence, so they are more reliable than internal records. Auditors usually reconcile statements from key suppliers to the ledger balance rather than send confirmations, because suppliers often do not reply and statements already exist. Confirmations can be used if statements are not available or there is a high risk. Include suppliers with low or nil balances, as these may hide unrecorded liabilities.

Accruals, such as utilities, rent, audit fees and interest, also need testing. Here you use analytical procedures, review of subsequent invoices and recalculation, and compare to prior year for items that are missing.

Key rules to remember

Payables days: Payables days = Trade payables ÷ Cost of sales (or credit purchases) × 365; Use for analytical review. A sharp fall in payables days may signal unrecorded liabilities or early payment; compare to prior year and industry.
Direction of testing for completeness: Completeness: independent source → ledger; For existence, test the other way: ledger → supporting documents.
Supplier statement reconciliation: Ledger balance ± reconciling items = Supplier statement balance; Typical reconciling items are goods in transit, invoices not yet recorded, cash in transit, disputed items and credit notes.

How to solve Audit of Payables and Completeness of Liabilities questions

Use this method for any question on payables, whether it asks for procedures, risks or an assessment of a reconciliation.

1Identify the assertion being tested. For payables it is usually completeness, plus cut-off.
2Decide the direction of testing. For completeness, start from an external or independent source and trace to the ledger.
3Choose the specific procedure: supplier statement reconciliation, post year-end payments review, GRN and invoice cut-off testing, or accruals review.
4State exactly what you do, then what you look for. For example, obtain statements from key suppliers, agree to the ledger, and investigate reconciling items.
5Say what the result means. An unrecorded item means understatement, so assess whether it is material and ask management to adjust.
6Add analytical review if relevant, such as payables days or monthly purchases compared to prior year.
7Link each procedure to the risk in the scenario, such as cash flow pressure or a weak purchases system.

Quickest way: Three-source completeness check

When to use it: Use when a Section C question asks for substantive procedures on payables and time is short.

Statements: reconcile key supplier statements, including nil balances.
Subsequent events: review payments and invoices after the year end and trace to the correct period.
Cut-off: check GRNs before and after the year end to invoices and the ledger.
Add one analytical point, such as payables days against last year.
Finish with accruals: review post year-end invoices and recalculate.

Common mistakes in Audit of Payables and Completeness of Liabilities

Selecting items from the payables ledger to test completeness.
Students copy the approach used for receivables or existence.
Fix: Start from independent sources such as statements, GRNs and post year-end payments, then trace to the ledger.
Writing 'send confirmations to all suppliers'.
Students assume confirmation is the standard for payables as it is for receivables.
Fix: Say you would reconcile supplier statements and use confirmations only where statements are unavailable or the risk is high.
Only choosing suppliers with large balances.
Students focus on size and forget the risk is omission.
Fix: Include suppliers with small or nil balances and major suppliers with whom there is high activity.
Treating the risk as overstatement.
Receivables logic carried over.
Fix: Remember management has an incentive to understate liabilities, so completeness is the key concern.
Listing a procedure without saying what you look for.
Students memorise procedure lists.
Fix: Add the purpose, such as 'to identify unrecorded liabilities' or 'to confirm the item is in the correct period'.

Worked examples

Example 1

Prepare a reconciliation: Ledger balance for supplier Alpha is $48,200 credit. Alpha's statement shows $58,700. The statement includes an invoice for $9,000 dated 29 December (year end 31 December) that is not in the ledger, and you confirm the goods were received on 28 December. The company also made a payment of $1,500 on 30 December that is recorded in the ledger but not yet on the statement. Explain the reconciliation and the audit implication.

Show the solution

The raw difference is $58,700 − $48,200 = $10,500. Two items should explain it.
Ledger side: start with the ledger balance of $48,200. Add the unrecorded invoice, which appears on Alpha's statement but is missing from the ledger and relates to goods received before the year end: $48,200 + $9,000 = $57,200.
Statement side: the statement is $58,700. The payment of $1,500 is already in the ledger but not yet on the statement, so deduct it: $58,700 − $1,500 = $57,200.
Both sides now agree at $57,200. The reconciling items explain the whole difference: $9,000 + $1,500 = $10,500.
Audit implication: the $9,000 invoice is on the supplier's statement but not in the ledger, so it is an unrecorded liability. Purchases and payables are understated by $9,000 and need adjusting if material.
The $1,500 payment is a timing difference. Agree it to the bank statement and check that it clears after the year end in the supplier's records.

Answer: Ledger plus the invoice on the statement but missing from the ledger is $48,200 + $9,000 = $57,200. Statement less payment in transit is $58,700 − $1,500 = $57,200. The two agree, with nothing unexplained. The $9,000 invoice is an unrecorded liability that should be adjusted if material.

Example 2

Your client is a wholesaler with a 31 March year end. Cash flow is tight and payables days have fallen from 60 to 38 despite stable purchases. List the audit procedures you would perform to test completeness of trade payables.

Show the solution

Explain the risk: falling payables days with stable purchases suggests liabilities may be unrecorded or cut-off may be wrong, so payables may be understated.
Obtain supplier statements from key suppliers, including those with low or nil balances, reconcile to the ledger and investigate reconciling items.
Review payments made after the year end and the post year-end invoices file. Trace each to the ledger and check the goods or service date to see whether it belongs before 31 March.
Test cut-off: take GRNs for the last days before and first days after the year end. Check that goods received before year end have an invoice or accrual and are in payables.
Review goods received not invoiced accrual: recalculate and check to GRNs and orders.
Compare monthly purchases and payables to prior year and ask management to explain unusual changes.
Review board minutes, legal letters and correspondence for disputes or commitments not recorded.
Obtain a written representation that all liabilities are recorded.

Answer: Focus on completeness: reconcile key supplier statements, review post year-end payments and invoices, test GRN cut-off, check the GRNI accrual, use analytical review and obtain representations. Each looks for unrecorded liabilities.

Exam tips

For payables, write 'completeness' early and state the direction of testing. Markers reward this.
In Section A, if an option tests from the payables ledger to invoices, that is existence, not completeness.
In reconciliation questions, work carefully item by item and say which side each reconciling item adjusts.
In Section C, tie procedures to scenario facts such as cash pressure or weak controls, not a generic list.
Objective test answers score all or nothing, so read whether the question asks about overstatement or understatement.

Audit of Payables and Completeness of Liabilities in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Audit of Payables and Completeness of Liabilities: frequently asked questions

Why is completeness the main assertion for payables?

Management may want to understate liabilities to improve profit and the financial position. Unrecorded liabilities are harder to find than recorded ones. So auditors focus on whether everything owed is in the ledger.

What is a supplier statement reconciliation?

You compare a supplier's statement to the company's ledger account for that supplier. You then explain differences such as goods in transit or unrecorded invoices. It is external evidence and good for finding unrecorded liabilities.

What is an unrecorded liability test?

It is a search for liabilities that existed at the year end but were not recorded. Typical work is reviewing payments and invoices after the year end, then checking whether they relate to the period before the year end.

Should auditors confirm payables balances directly?

Sometimes, but it is less common than for receivables. Supplier statements are usually available and are enough. Confirmation is used if statements are missing or the risk is high.