Pinnacle Manufacturing: Part VII

a) Relationships
The relationship of current accounts payable amounts and previous accounts payable should be reviewed. The relationship of what is included in the accounts payable balance should be reviewed as well.
Ratios
The following ratios use the accounts payable balance: * Gross profit ratio * Accounts payable versus purchases * Overhead versus materials
Trends
Auditors should look for trends in accounts payable such as the following: * Recurring expenses that are on the income statement every month. For example, rent could be a recurring monthly expense. * The amount of purchases made each month or during a particular month. For example, a company could have a large amount of purchases the beginning of every November for the Holiday season. b) Audit Program for Accounts Payable 1. Review accounts payable trial balance for large and unusual accounts payables 2. Follow up on any significant changes from prior years 3. Review the accounts payable listed on the aged payable for notes and related party payables. 4. Trace 50 accounts from the trial balance to the accounts payable master file for aging and the balance. 5. Foot two pages of the trial balance for the aging columns and balance and total all pages and cross-foot the aging. 6. Trace the balance to the general ledger 7. Confirm accounts payable using positive confirmations. 8. Confirm all amounts over $50,000 and a nonstatistical sample of the remainder. 9. Perform alternative procedures for all confirmations not returned on the first or second request. c) If assessed control risk, inherent risk, and risk for misstatement was high then auditors would have to review items more closely and extensively. In addition, the sample sizes would have to be increased to help catch misstatements and