Account payable confirmation is the confirmation prepared and processed by auditors to cross-check the amount and information between the client’s records and the client’s supplier’s records. Those could be included in the outstanding balances and transactions.
It is not normal that auditors perform account payable confirmation to suppliers. In most cases, auditors perform bank and account receivable confirmation.
But, if auditors want to obtain confirmation from third parties about the information related to account payable, then probably the auditor needs to have the control that the control or documents related to the recording of account payable are not reliable.
Auditors normally prepare account payable confirmation, and then the draft of confirmation will then be sent to the client for review. Once the confirmation is reviewed, then those drafts need to sign authorized by management in the entity that has enough authority to sign on the form. This is normally the General Manager or CFO of the entity.
Once the confirmations are signed, then auditors need to process the confirmation to the clients’ suppliers. This is to ensure that the information is delivered to those creditors correctly.
Those creditors then send back the confirmation to auditors directly. This is to make sure that the auditor received the correct information.
Normally, there are two main types of confirmation that auditors could use to perform AP confirmation. One is positive confirmation, and the second is negative confirmation.
Positive confirmation is required suppliers to review the information, complete the form, and then respond directly to auditors whether or not the information is correct.
Negative confirmation is required suppliers to review the information and then respond bank to auditors only if the information in the confirmation is incorrect. Negative confirmation is not popular because auditors sometimes cannot ensure the completeness of the information sent.
When Should Auditors Use Accounts Payable Confirmations?
Account payable confirmation is the alternative procedure that the auditor uses in addition to their substantive testing of the account payable in the way of reviewing the outstanding invoices, testing the subsequent payable, and reviewing the age payable outstanding as well as an analytical review of it.
Normally, account payable confirmation is used to verify the accuracy and existence of account payable at the end of the accounting period that claims to be existing by the client. If the risks are considered as high, based on auditor assessment, especially related to the existence, then the auditor should not only perform account payable confirmation but use the positive payable confirmation.
What should be included n the account payable cnfirmation?
The same as other confirmation, the information that should be included in the confirmation is,
- Name of the client’s creditors to be confirmed including the address of the company, name of responslble person if possible, outstanding amoun, and any condition that auditor want the creditor to do if there is any varraince
- Name of auditor that the creditor will send the confirmation to, including the detail address and contact detial such as email, phone number