8.44 Search for Unrecorded Liabilities. C. Marsh, CPA, is the independent audito

Question

8.44 Search for Unrecorded Liabilities. C. Marsh, CPA, is the independent auditor for Compufast Corporation (Compufast), which sells personal computers, peripheral equipment (printers, data storage), and a wide variety of programs for business and games. From experience on Compufast's previous audits, Marsh knew that the company's accountants were very much concerned with timely recording of revenues and receivables and somewhat less concerned with keeping up-to-date records of accounts payable and other liabilities. Marsh knew that the control environment was strong in the asset area and weak in the liability area.

Required: List substantive procedures that Marsh and the audit staff can perform to obtain reasonable assurance that Compufast's unrecorded liabilities are discovered and adjusted in the financial statements currently under audit. please cite it using apa from pcaob

Explanation / Answer

To search for Unrecorded liabilities, an auditor should check for various payments after the date of Balance Sheet.

The case may be there, where a client may not record the Account payable,but there is NIL chances that the vedor forget to demand for the amount payable. The vendor will pressurise the clinet for payment within a reasonable period of time. And due to this pressure, most unrecorded accounts payable are paid within a reasonable time after the balance sheet date.

By Checking the varous payment made after the date of Balance sheet, the auditor can have a good idea of various unrecorded accounts payable.

The auditor then vouches a sample of invoices to determine to which period the payment relates.

For example, vouching a Tepelphone Bill payment in January to an unaccounted December bill will indicate that the payment relates to the period of December, prior to year-end.

Even, the audiotr should check the major transaction held in a year like Equipment purchase, any conference expenses, and the prices at which transaction was executed and how the payment relating to that transaction is made.

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