During testing of trade payables, if after-year-end payments to a supplier are not included on the year-end list, what does this most likely indicate?

• A. Payables balance may be incomplete.
• B. Cash and goods in transit have been misclassified.
• C. Issuance of a credit note by the supplier.
• D. Excess of purchases over cash payments.

Answer: (A)

The main concept being tested is the completeness and cutoff of trade payables. The year-end list should reflect every liability outstanding at the balance sheet date, including amounts that will be paid after year-end. If payments made after the year-end are not included on the year-end list, it suggests that some liabilities that existed at year-end were not recorded, leading to an understated payables balance. This points to a weakness in capturing all obligations at year-end, i.e., an incomplete payables balance and improper cutoff.

Other possibilities don’t fit as well: misclassifying cash and goods in transit wouldn’t by itself cause payables to be omitted from the year-end list; a credit note from the supplier would affect the balance but doesn’t explain missing year-end liabilities; and an excess of purchases over cash payments relates to accrual timing but not specifically to after-year-end payments not appearing on the year-end list.