Question

In: Accounting

When it comes to fraud that an A/P does, What can the company do to prevent...

When it comes to fraud that an A/P does, What can the company do to prevent this type of behavior?

Solutions

Expert Solution

1. Check whether there are controls in place to ensure that any purchase/ expense invoice does not get recorded more than once and payable balances are automatically recorded in the general ledger at the time of recording of expense.

2.Periodiclly obtain the accounts payable ageing report and trace its balances to the general ledger. If there are any differences, investigate reconciling items. If there are journal entries in the accounts payable account in the general ledger, review the justification for larger amounts.

3.In large firms where A/P is a major section plan for carrying out detailed internal auditing programmes at regular interval.This may avoid fraud to an extent and may prevent any intensional thoughts of employee to do a fraud.

4.The trade creditors may be requested to confirm the balances either as at any selected date .The date should be decided by the auditor. A random check may eliminate any intensional misappropriation in the firm.The method of selection of the trade creditors to be circularised should not be revealed to the Company until the trial balance of the trade payables’ ledger is handed over to the auditor.

5.Any discrepancies revealed by the confirmations received or by the additional tests carried out by the auditor may have a bearing on other accounts not included in the original sample. The entity should be asked to investigate and reconcile the discrepancies. In addition, the auditor should also consider what further tests he can carry out in order to satisfy himself as to the correctness of the amount of trade payables taken as a whole.

6.Where no reply is received, the auditor should perform additional testing regarding the balances. This testing could include:

(i) Testing of subsequent payments in respect of the trade payables to whom confirmations were rolled out but no replies received;

(ii) Agreeing the details of the respective balance to the underlying vendor invoices;

(iii) Preparing a detailed analysis of the balance, ensuring it consists of identifiable transactions and confirming that these purchases/ expense transactions actually occurred.

7. If there are any related party payables, review whether they were properly authorized and the value of such transactions were reasonable and at arm’s length.

8.Review a trend line of purchases/ expenses and accounts payable, or a comparison of the two over time, to see if there are any unusual trends.


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