Accounts Payable and Other Liabilities

A liability is a present obligation of the enterprise arising from past events, the settlement
of which is expected to result in an outflow from the enterprise of resources embodying
economic benefits. It also includes amounts received in advance for a future sale or for a
future service to be performed.
Example of Liabilities:
1. Notes Payable
2. Accounts Payable
3. Salaries Payable
4. Wages Payable
5. Interest Payable

6. Other Accrued
Expenses Payable
7. Income Taxes
Payable
8. Customer Deposits
9. Warranty Liability

10. Lawsuits Payable

11. Unearned
Revenues
12. Bonds Payable
13. Pensions Payable

Classification
Current liabilities are reasonably expected to be liquidated within a year. They usually
include payables such as wages, accounts, taxes, and accounts payable, unearned revenue
when adjusting entries, portions of long-term bonds to be paid this year, short-term
obligations (e.g. from purchase of equipment).
Long-term liabilities are reasonably expected not to be liquidated within a year. They
usually

include

issued

long-term bonds,

notes

payables,

long-

term leases, pension obligations, and long-term product warranties.

Audit of Current Liabilities

Assertions
I. Existence / Occurrence

Audit Objectives
Audit Procedure
a. To determine that payable 1. Obtain from client a
exist as of the statement of listing
financial position date

of

accounts

and

notes payable as of year-end

and reconcile to the general
ledger
2. Vouch recorded liabilities
to vendors' statements
3.

Confirm

recorded

liabilities

directly

suppliers

and

with

creditors.

Investigate differences in
liabilities reported in the

confirmations

with

the

recorded book amounts

4.

Examine

bank

confirmations for loans

b. To determine that all 5. Perform purchases cutoff

II. Completeness

transactions

relating

to examination

payable have been properly 6.

recorded

for

unrecorded

Perform

analytical

liabilities
7.

III. Rights and Obligation

Test

procedures
c. To determine that payable 8. Review documentation in
represents valid and legal client's files
claims of third parties from 9.

IV. Valuation / Allocation

Examine

subsequent

the client
payments to creditors
d. To determine that payable 10. Vouch accounts payable
are recorded at the proper schedule
amount

V.

Presentation

Disclosure

11. Test computation of

accrued or prepaid interest

and e. To determine that payable 12. Scan list of payable to
are presented and disclosed determine that each major
according to PAS/PFRS

type

of

properly

obligation
described

is
and

classified. Determine that

contingent

liabilities

are

properly disclosed
13.

Obtain

representation letter

Audit of Other Current Liabilities

Withholding Tax Payable

Unclaimed Salaries and Wages
Income Tax Payable

client's

Accrued Expenses Payable

VAT Payable

Audit of Long-term Liabilities

Assertions
I. Existence / Occurrence

Audit Objectives
Audit Procedure
a. To determine that long- 1. Obtain an analyses of
term debts exist at year-end

long-term debt accounts and

related interest, premium
and discount accounts
2. Review debt agreements
and confirm with payees the
principal amount, maturity
date, interest rate, etc.
3. Inspect bonds redeemed,
retired

II. Completeness

or

surrendered

during the period

b. To determine that all 4. Trace authorization for
transactions relating long- issuance of debt to credits
term debts are properly to
recorded

the

long-term

debt

account
5. Vouch borrowing and
repayment transactions and
review

transactions

supporting
III. Rights and Obligation

to

documents

occurring near year-end

c. To determine that long- 6. Review minutes of board
term debts represent valid of directors' meetings
obligation of the entity

7. Review payments and

renewals after the statement

IV. Valuation / Allocation

of financial position date

d. To determine that the 8.
Recalculate
interest
long-term

debts

are expense and amortization of

recorded

at

the

amount

proper premium or discount if any

9. Ascertain the amount of
long-term

V.

Presentation

Disclosure

debt

maturing

within one year

and e. To determine that long- 10. Evaluate presentation in
term

debts

are presented the financial statement of

and disclosed in accordance the

with PAS/PFRS

long-term

debt.

Examine classification of
obligation as either secured
or unsecured

Bibliography
www.wikipedia.com
Applied Auditing Book 2014 Edition by Ma. Elenita Balatbat Cabrera