? Show Log inLiability is defined in Conceptual Framework of International Financial Reporting Standards as “a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits”. There can be many instances where management will be
prone to not record a liability due to various reasons. The management may not record a current liability to improve its current ratio and present its liquidity position higher. Management may also skip to record a long term liability at year end to improver it debt to equity ratio. A high current ratio and low debt to equity ratio makes it easy for the management to obtain new financing for the company. Auditor should verify the
unrecorded liability by applying the following procedures:
Practice The auditor should check for all the audit assertions while verifying unrecorded liabilities. Valuation assertion will verify whether accounts payable are valued in accord with GAAP/IFRS? Presentation/Disclosure assertion will verify whether the accounts liability balances are properly presented and disclosed? Accounts payable should be listed as a current liability. Purchases should be listed in the calculation of cost of goods sold. Unusual transactions involving accounts payable should be disclosed, such as related party transactions involving accounts payable. Obtain a management representation letter with assertions relating to accounts payable and purchases. http://audit-is-cool.blogspot.com
How will you audit unrecorded liabilities?Search for unrecorded liabilities involves reviewing payment vouchers issued after year-end and unpaid supplier invoices as at the date of audit to check that all material liabilities relating to the financial year have been recorded as at year-end.
Which of the following audit procedures is the most effective for detecting unrecorded liabilities?The confirmation of accounts payable selected from the year-end trial balance of such accounts is most effective in discovering unrecorded liabilities.
Which is the best audit procedure to discover unrecorded liabilities at yearWhich of the following is the most efficient audit procedure for the detection of unrecorded liabilities? Compare cash disbursements in the subsequent period with the accounts payable trial balance at year-end.
What are unrecorded liabilities?Unrecorded liabilities are those liabilities which are not recorded in the books of account. The accounting treatment for unrecorded liability is: (a) When the unrecorded liability is paid off: Realisation A/c Dr.
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