Mastering Accounts Payable Audits: A CFO’s Guide 2025

This includes verifying that all invoices and payments are accurately recorded and that no transactions are missing from the records. But without strong oversight, issues like errors, missed payments, or even fraud can creep in, putting the financial health of a business at risk. These audits help ensure every transaction is accurate and legitimate while protecting businesses from costly mistakes, regulatory penalties, and reputational damage. By scrutinizing invoices, payments and vendor records, audits ensure compliance, accuracy and transparency in financial operations. For most private companies, implementing an AP audit program falls into the “voluntary but smart” category.

Application Management

This helps growth-minded companies detect and avoid damaging financial irregularities such as misreporting, overspending, and fraud. Your accounting team isn’t the only one who should be thinking about AP audits. When everyone understands why audits matter, you’ll have fewer issues to fix. Offer training sessions so employees know what to look for when processing invoices and payments. Encourage an open door policy where your staff can ask questions and report any concerns without hesitation. To minimize the risk of fraud QuickBooks ProAdvisor and errors, identify and document the employees responsible for key AP tasks like invoice entry, approvals, payments, and updating financial records.

✅ Organize Documents

• With the evolution of AP automation, businesses are not just leveraging technology but also incorporating data analytics, real-time monitoring, and predictive analysis into their operations.
• An absence of critical documents like purchase orders, invoices, or proof of delivery can be a red flag for auditors.
• Establishing strict and well-documented SOPs for approval processes and ensuring their accessibility to all employees in the organization is vital for maintaining a solid audit trail.
• While many businesses believe their internal reviews are enough, real protection comes from applying robust, targeted audit procedures that reveal what’s often overlooked.
• Regular AP audits protect your bottom line while building stronger financial foundations that support long-term business growth and stakeholder trust.
• From an auditor’s perspective, it is important to make sure of the fact that accounts payable is properly audited since it is a line item with a relatively higher risk.

This is pursuant to the license by Visa® Inc and Mastercard and is available for the residents of UAE subject to Terms and Conditions of use. Regardless of the audit cycle, continuously assess and improve auditing procedures. Explore options such as accounts payable automation, process optimizations, and strategic partnerships. Finally, the audit team prepares a detailed audit report, including an executive summary, methodology, findings, and recommendations. The report provides a comprehensive overview, detailing identified issues and areas of strength.

• These four procedures may be conducted as part of a routine financial statement audit, or you may decide to hire an auditor to specifically target the AP department.
• Conducting an accounts payable (AP) audit is no longer optional—it’s a critical annual requirement for most companies.
• Purchase orders, with their detailed outline of transaction specifics, provide a reassuring confirmation.
• An auditor can audit for disclosure by inspecting financial statements to verify things such as current liability and if purchases are included in the cost of goods calculations.
• The Sarbanes-Oxley Act of 2002 established a requirement that all businesses submit records to a third party for external examination.
• Let’s assume the above transaction relates to the security contract payments for the services received in Dec 2021.

Keep Track of Payments With an Accounts Payable Ledger Template

• It involves continuous communication with stakeholders to address concerns or questions arising from the audit report.
• Fraud may result because of personal perks such as acquiring supplies for higher prices than the original price of the material and then claiming back those perks from vendors.
• Conducting regular AP audits is crucial for maintaining financial accuracy, compliance, and operational efficiency.
• Some audits may cover unique, less-predictable areas than those found in Sarbanes-Oxley Act (SOX) or compliance-focused audits.
• A 2016 study by the Association of Certified Fraud Examiners found that organizations lose an average of 5% annual revenue every year due to fraud.
• ” We’ll also take a look at common payables-related risks and how to respond to them.

This helps prioritize which risks need immediate attention versus those you can address over time. Cross-training team members on different aspects of the AP process creates backup coverage and helps staff understand how their work fits into the bigger picture. Well-trained employees are your first line of defense against errors and intentional fraud attempts.

Additionally, we usually examine the reconciliation report to ensure that it is done by independent personnel and is properly reviewed. This is to evaluate the effectiveness of control procedures of accounts payable reconciliations, so that we may be able to place reliance on the client’s accounts payable reconciliation procedures. Control risk of accounts payable is high if the company does not have effective control in place or the related personnel that operates the control procedures do not perform their work properly.

• Ensure vendor invoices, purchase orders, receipts and contracts are properly filed and easily accessible.
• Generally, an AP audit seeks to confirm that a company is presenting an accurate view of its financial reporting, internal controls, and compliance with applicable laws and practices.
• Material errors affecting prior periods necessitate a restatement of those financial statements.
• Auditors may also request financial documents like your general ledger and balance sheets.
• Suppose the company you are auditing receives $2,000 in legal services in the last week of December 2019, but the law firm sends the related invoice in January 2020.

This includes verifying that all vendor invoices, credit memos, and payments are accounted for in the correct reporting period. A purchase order (PO) approval is a process that requires obtaining authorization from the appropriate individual or department before making a purchase. Accounts payable (AP) is an integral part of audit procedures for accounts payable any business operations, and efficient management of this process is crucial for maintaining financial stability.

They enable AP teams and auditors to check invoice status, review transactions, and monitor AP department performance. Obviously, the accuracy of a company’s financial records is critical, and an AP audit will look to confirm the accuracy of the AP practices. Auditors will perform several procedures at this stage, including examining the SOP, and recalculation of supplier invoices and payments. AP auditing is the process of reviewing all the related CARES Act financial information that resides on a company’s AP records in detail.

Audit Procedures for Auditing Accounts Payable

AP automation consolidates all necessary documents in a single platform, allowing auditors to easily access vendor invoices, payment records, and compliance reports. Properly audited accounts payable records make tax filing more straightforward. Businesses can avoid overstatements or understatement of tax liabilities by ensuring all expenses are correctly categorized and reported. This reduces the risk of penalties, interest on late payments, or audits by tax authorities. An unrecorded invoice might represent a genuine liability that needs to be accrued.