As the GYF Assurance & Advisory (A&A) Group continues its 2026 busy season, final fieldwork is underway for our year-end audit engagements. This phase of the audit process focuses on gathering the evidence needed to support the balances, activity and disclosures presented in the financial statements – ultimately forming the basis for the audit opinion to be issued in the coming months.
This post, which focuses on accounts payable and accrued expenses, is a continuation of a blog series that is designed to explore and explain various areas of the audit process.
What Are Accounts Payable and Accrued Expenses?
Accounts payable and accrued expenses are presented as a liability on an entity’s balance sheet, representing obligations to other companies or individuals for goods or services that have been provided, but have not yet been paid for or otherwise satisfied. As a company receives the benefit of goods or services, expenses are recorded along with an offsetting liability to accounts payable or accrued expenses. While accounts payable typically relates to amounts due to vendors for normal operating goods and services (generally supported by an accounts payable aging out of the company’s accounting system), accrued expenses is a broader category that may include the following:
- Payroll liabilities – Payroll liabilities relate to salaries, wages, payroll taxes and other employee benefits that have been earned by employees based upon hours worked up through the balance sheet date for which they have not yet been paid. This may also include accrued vacation or PTO balances.
- Accrued interest – A company should assess whether there is any amount due to lenders for interest as of the balance sheet date. Accrued interest would capture any interest that has been accumulated and not yet paid as of the balance sheet date.
- Accrued purchases – Companies that deal in inventory may have received inventory or goods as of the balance sheet date for which no invoice has been provided by the vendor. These goods should be reflected as accrued purchases as of the balance sheet date.
- Customer refunds or rebates – If there are refunds due to customers for goods or services provided prior to the balance sheet date which have not yet been paid, these refunds should be reflected as a liability as of the balance sheet date. Additionally, if contracts with customers allow for rebates of any kind, these should be estimated and accrued for as of the balance sheet date.
- Accrued professional fees or claims – Management should assess whether or not any professional services (such as legal or consulting services) have been received prior to the balance sheet date that have not yet been invoiced and included in trade accounts payable. Management should also consider any legal claims or assessments against the Company that should be estimated and accrued for as of the balance sheet date.
Why Do We Audit Accounts Payable and Accrued Expenses?
The purpose of an audit is to provide independent assurance that the financial statements of a company are fairly presented in accordance with the applicable accounting framework (typically U.S. GAAP). An unmodified audit opinion offers reasonable assurance that the financial statements are free from material misstatement, whether caused by error or fraud.
Accounts payable and accrued expenses often comprise a significant balance and are material to the financial statements. Additionally, any misstatement in accounts payable and accrued expenses often have a direct impact on expenses and reported profitability and equity.
Typically, the highest-risk assertions are completeness and cutoff. Because liabilities may be unrecorded or recorded in the wrong period, auditors focus on identifying any obligations that should have been captured as of the balance sheet date.
How Do Auditors Test Accounts Payable and Accrued Expenses?
To evaluate whether the accounts payable and accrued expenses are fairly stated, auditors commonly perform the following procedures:
- Review and evaluate supporting schedules – Auditors will typically obtain supporting schedules for significant accounts or balances included in accounts payable and accrued expenses. Reviewed items generally include an accounts payable aging for trade accounts payable along with supporting schedules for other liabilities. Supporting schedules and agings will be evalluated for reasonableness and unusual or unexpected transactions or reconciling items.
- Subsequent disbursements testing – Companies may be asked to provide a listing of payments made after the balance sheet date. Auditors will select a sample of these payments to test for understatement of payables and proper cutoff.
- Open invoice testing – Auditors may request an aging subsequent to the balance sheet date or access to unpaid invoices as of the date of testing to check for any invoices that should have been accrued as of the balance sheet date.
- Analytical procedures – Analytical procedures begin with auditors establishing expectations for accounts payable and accrued liability balances based upon prior year balances, current year activity levels and budgets. The auditors will then document any exceptions from these expectations.
What Information Will the Auditor Typically Request?
In order to complete the audit procedures for accounts payable and accrued expenses, an auditor may request:
- Internal financial statements
- Year-to-date budget approved by management for the period under audit
- Accounts payable agings
- Check or payment register of payments made subsequent to the balance sheet date
- Supporting schedules or analyses for accrued expense balances
- Credit card statements
- Reconciliations or details for material accounts
- General ledger detail
- Selected vendor invoices and payment support
Key Takeaways
Accounts payable and accrued expenses are critical to the financial statements and play an important part to the support of the audit opinion. Understanding the purpose behind the audit procedures (and the information the auditors may request) helps ensure a smoother, more efficient audit for all parties involved.
Please reach out to GYF to learn more about the audit process or to discuss the specific needs of your organization.
Related Posts:
Understanding the Audit Process: Accounts Receivable (A/R)
