Peprah Company pays its accounts payable 45 days after receipt of the goods or services. In this case which audit procedure should be used to detect any unrecorded liabilities?
A) examine cash disbursements for several weeks after the balance sheet date
B) reconcile purchase orders to requisition orders
C) reconcile purchase orders to receiving reports
D) reconcile purchase orders to vendor invoices

Question

Quizplus · Accepted Answer

Examining cash disbursements for several weeks after the balance sheet date will help to detect any unrecorded liabilities since Peprah Company pays its accounts payable 45 days after receipt of the goods or services. This allows for some lag time between when the goods or services are received and when they are paid for, so examining cash disbursements after the balance sheet date will help to identify any liabilities that were not recorded on the balance sheet. Reconciling purchase orders and vendor invoices to detecting unrecorded liabilities would not be as useful as examining cash disbursements.

Peprah Company Pays Its Accounts Payable 45 Days After Receipt