Scenario: An auditor is testing the completeness assertion for accounts payable of a nonissuer. The auditor selects a sample of cash disbursements made subsequent to year-end and examines the supporting documentation (invoices and receiving reports).<br/><br/>Which of the following findings would represent a misstatement related to the completeness of accounts payable?

Answer options:

A disbursement on January 5, Year 2, for goods received on January 3, Year 2, recorded in Year 2.

A disbursement on December 30, Year 1, for goods received on December 28, Year 1, recorded in Year 1.

A disbursement on January 10, Year 2, for goods received on December 28, Year 1, which was recorded as an expense in Year 2.

A disbursement on January 10, Year 2, for goods received on December 28, Year 1, which was accrued as a liability in Year 1.

How to approach this question

Focus on the 'Completeness' assertion: Is everything that *should* be recorded actually recorded? Look for items that belong in Year 1 (received in Year 1) but were not recorded until Year 2.

Full Answer

C.A disbursement on January 10, Year 2, for goods received on December 28, Year 1, which was recorded as an expense in Year 2.✓ Correct

A disbursement on January 10, Year 2, for goods received on December 28, Year 1, which was recorded as an expense in Year 2.

The search for unrecorded liabilities (testing completeness) involves looking at payments after year-end to see if they relate to obligations that existed at year-end. Option C describes a liability incurred in Year 1 (goods received Dec 28) that was not recorded until Year 2, resulting in an understatement of Accounts Payable.

Common mistakes

Confusing Existence (recorded but shouldn't be) with Completeness (should be recorded but isn't).

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