In performing a search for unrecorded liabilities, which of the following procedures would be most effective?

Answer options:

Vouch a sample of accounts payable entries recorded before year-end to receiving reports.

Examine cash disbursements recorded after the balance sheet date.

Confirm accounts payable with a sample of vendors with small or zero balances.

Recalculate accrued interest expense.

How to approach this question

Identify the assertion: Completeness (Unrecorded). Best test: Look at what happened *after* year-end (payments) to see if it belonged in the prior year.

Full Answer

B.Examine cash disbursements recorded after the balance sheet date.✓ Correct

Examine cash disbursements recorded after the balance sheet date.

Examining subsequent cash disbursements is the primary procedure to detect unrecorded liabilities. The auditor selects payments made after year-end and examines the supporting documentation (invoice date, receiving date) to determine if the liability related to the period under audit.

Common mistakes

Selecting vouching (Existence) instead of tracing/subsequent review (Completeness).

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