Current Liabilities

Question 1

Give an example of an analytical procedure to evaluate dividends payable at year-end.

Answer 1

The auditor might estimate the dividends payable, in view of the declared dividends/share (per the minutes of board meetings) times the number of shares outstanding at year-end.

Question 2

Describe the basic steps that comprise the auditor’s search for unrecorded liabilities.

Answer 2

1. )Review cash disbursements after year-end and examine underlying documents to identify liabilities of the period under audit.
2. )Examine unpaid invoices (and receiving documents) at the time of the test.
3. )Inquire of management as to the completeness of liabilities (document that in the management representations letter).

Question 3

Identify an audit procedure that addresses the rights and obligations assertion for accounts payable.

Answer 3

Inquire of management about any transactions with related parties that result in obligations.

Question 4

Give an example of an analytical procedure to evaluate wages and salaries payable at year-end.

Answer 4

The auditor might estimate the wages and salaries payable based on the number of days to be accrued relative to the payroll for a normal pay period.

Question 5

Identify a few audit procedures to address the existence assertion for accounts payable.

Answer 5

1. )Compare the general ledger control account to the supporting detailed listing of payables.
2. )Agree selected items to vendors’ invoices
3. )May choose to confirm payables (but usually do not, since completeness is typically a greater concern than existence with respect to liability accounts).

Question 6

Give an example of an analytical procedure to evaluate interest payable at year-end.

Answer 6

The auditor might estimate the accrued interest for the time period involved, based on the interest rate (and payment dates) specified in the underlying debt agreements.