Audit of trade payables: which assertion is typically more of a concern?

• A. Existence
• B. Completeness
• C. Valuation
• D. Rights and obligations

Answer: (B)

When auditing trade payables, the main concern is the completeness of liabilities. Completeness means that all liabilities that exist at the reporting date are recorded in the accounts. This matters because it's easy for payables to be omitted due to timing differences or oversight, especially with vendors and invoices that arrive after year-end or relate to goods or services received before year-end but not yet invoiced.

Reasons this area is a focus: if liabilities are understated, expenses and liabilities are too low, which can inflate profitability and distort liquidity ratios. Common scenarios include invoices received after the year-end but relating to the period, accruals for goods or services already received, or unrecorded obligations identified through supplier statements or unmatched receiving reports. These risks make completeness the assertion auditors watch most closely for payables.

In practice, auditors gather evidence through procedures like reconciling supplier statements to the accounts payable ledger, testing year-end cut-offs to ensure invoices and goods are recorded in the correct period, and reviewing post-balance-sheet payments to determine whether they relate to the prior period. They may also perform procedures to identify unrecorded liabilities by examining contracts, purchase orders, and receiving reports around year-end. While other assertions like existence, valuation, and rights and obligations are important in different contexts, completeness is typically the priority concern for trade payables because understatement has a higher potential to misstate the financial statements.