Key Points
- Accounts payable captures supplier obligations where both the amount and timing of payment are known or determinable.
- Completeness (not existence) is the primary audit assertion because unrecorded payables understate liabilities and overstate profit.
- Year-end payables on mid-market IFRS engagements typically represent 8% to 15% of total revenue.
- A missed payable cut-off adjustment that exceeds performance materiality triggers a required entry on the summary of uncorrected misstatements.
What is Accounts Payable?
IAS 1.54(k) requires a separate line item for trade and other payables on the balance sheet. IAS 37.11(b) distinguishes payables from provisions: where a provision involves uncertainty of timing or amount, a trade payable is an obligation to pay for goods or services that have been received or supplied and have been invoiced or formally agreed with the supplier. The measurement uncertainty is low, so IAS 37 does not apply.
The auditor's focus sits squarely on completeness. ISA 500.A14 defines the completeness assertion as whether all transactions that should have been recorded are recorded. For payables, this translates into a specific question: did the entity book a liability for every item received before the reporting date, even if the invoice arrived after? The answer depends on cut-off procedures. ISA 330.A53 directs the auditor to design substantive procedures that address the cut-off assertion at the period boundary.
Search-for-unrecorded-liabilities (SURL) testing is the standard procedure. The auditor examines post-year-end payments, post-year-end invoices, and goods-received-not-invoiced (GRNI) reports to identify obligations that existed at the reporting date but were not recorded. Supplier statement reconciliations provide a second source of evidence, though they test only the payables the entity already knows about.
Worked example
Client: Spanish wholesale distribution company, FY2025, revenue EUR 34M, IFRS reporter. Fernandez supplies building materials to contractors across southern Spain. The finance team processes approximately 1,200 purchase invoices per month. The company has a 45-day payment cycle with most suppliers.
Step 1 — Obtain the year-end accounts payable listing
The auditor requests the aged payable listing at 31 December 2025. The total trade payables balance is EUR 4.2M. The auditor agrees this to the general ledger and the trial balance.
Documentation note: record the agreed balance, the date the listing was generated, and any reconciling items between the sub-ledger and the general ledger. Note the number of supplier accounts (387) and the ageing profile.
Step 2 — Perform search-for-unrecorded-liabilities testing
The auditor selects all payments made between 1 January and 28 February 2026 exceeding EUR 15,000 (42 items totalling EUR 3.8M). For each payment, the auditor traces the underlying invoice to the delivery note or proof of service. Fourteen invoices (totalling EUR 620,000) relate to goods delivered before 31 December 2025. Of these fourteen, eleven were already accrued in the year-end payables balance. Three invoices totalling EUR 185,000 were not recorded at year-end.
Documentation note: record the population of post-year-end payments tested, the sampling threshold and rationale, the delivery dates confirmed per goods-received documentation, and the three unrecorded items with full details (supplier name, invoice number, delivery date, amount).
Step 3 — Reconcile supplier statements
The auditor sends confirmation requests to the 15 largest suppliers by balance. Twelve respond. For the three non-respondents, the auditor performs alternative procedures by reconciling the supplier's statement (obtained from the client's procurement records) to the payable sub-ledger. One reconciliation reveals a EUR 42,000 credit note issued by the supplier in December 2025 that the client recorded in January 2026.
Documentation note: record the confirmation response rate, the alternative procedures performed for non-respondents, the reconciling items identified, and the resolution of each item. Cross-reference each confirmation to the payable sub-ledger detail.
Step 4 — Assess the total misstatement
The three unrecorded invoices (EUR 185,000) plus the misposted credit note (EUR 42,000) produce a net understatement of payables of EUR 227,000. Overall materiality for the engagement is EUR 510,000. Performance materiality is EUR 330,000. The EUR 227,000 sits below performance materiality but is posted to the summary of uncorrected misstatements per ISA 450.A5. Combined with other identified misstatements, the auditor evaluates whether the aggregate is material.
Documentation note: record the proposed adjustment (debit cost of goods sold EUR 185,000, debit trade payables EUR 42,000 for the credit note reversal, credit trade payables EUR 185,000, credit cost of goods sold EUR 42,000), the position on the summary of uncorrected misstatements, and management's written response to the identified errors.
Conclusion: the SURL testing and supplier confirmations together provide sufficient evidence over the completeness of payables at year-end, and the EUR 227,000 understatement is defensible as an uncorrected misstatement provided the aggregate remains below materiality.
Why it matters in practice
- The FRC's 2023/24 Audit Quality Inspection Report for non-PIE audits noted that search-for-unrecorded-liabilities procedures were frequently limited to a short post-year-end window (two to three weeks). Extending the SURL period to at least six weeks after year-end captures invoices with longer supplier billing cycles, particularly for service-based payables where invoicing lags delivery.
- Teams sometimes test accounts payable existence by confirming balances to supplier invoices on file, which addresses the wrong assertion. The primary risk for payables is completeness (obligations the entity failed to record), not existence. ISA 315.A195 identifies completeness as the relevant assertion for liabilities where understatement is the more likely misstatement direction. Testing existence when completeness is the risk produces a file that looks thorough but answers the wrong question.
Accounts payable vs. accrued liabilities
| Dimension | Accounts payable | Accrued liabilities |
|---|---|---|
| Documentation basis | Supported by a supplier invoice or a formal purchase order with agreed pricing | Estimated by the entity because no invoice has been received at the reporting date |
| Measurement uncertainty | Low: amount is determinable from the invoice or contract | Moderate: requires estimation of amount, though the obligation itself is known |
| IAS 37 treatment | Excluded from IAS 37 scope per paragraph 11(b) because uncertainty is minimal | Also excluded from IAS 37 scope, but sits closer to the boundary with provisions |
| Typical audit procedure | Supplier statement reconciliation, confirmation, post-year-end payment testing | Post-year-end invoice matching, GRNI report analysis, management inquiry on estimation basis |
| Common audit finding | Unrecorded invoices received after year-end for pre-year-end deliveries | Underestimation of service-based accruals where the entity lacks delivery documentation |
Both accounts payable and accrued liabilities represent present obligations for goods or services already received. The practical difference is whether the entity has received pricing documentation from the supplier. On an audit, both fall under the completeness assertion, but the evidence sources differ. Payables can be confirmed directly with suppliers. Accruals require the auditor to evaluate management's estimation method against post-year-end invoices as they arrive.
Related terms
Frequently asked questions
How do I test accounts payable completeness on a small engagement?
Select all payments made in the first four to six weeks after year-end above a threshold tied to performance materiality. Trace each payment to the underlying invoice, confirm the delivery or service date, and verify whether the liability was recorded at year-end. ISA 330.A53 requires procedures directed at cut-off. On engagements with fewer than 50 suppliers, consider reconciling statements from all active suppliers instead of sampling.
When should an accounts payable balance be reclassified as a provision?
Reclassify when the amount or timing of payment becomes genuinely uncertain. IAS 37.11(b) draws the line: if the goods or services have been received and the amount is determinable from an invoice or contract, the item is a payable. If the entity disputes the amount, expects to negotiate a settlement, or cannot determine when payment will occur, IAS 37.14 applies and the item is a provision. The trigger is measurement uncertainty, not the size of the balance.
Does accounts payable testing change on a group audit?
The group engagement team sets component materiality, which directly affects the SURL testing threshold at each component. ISA 600.40 requires the group engagement team to evaluate whether sufficient appropriate evidence has been obtained across all components, including for payables completeness. If a component auditor uses a higher SURL threshold than the group engagement team would consider appropriate, the group team requests additional testing or performs its own procedures.