You have just completed control testing for accounts payable. You found three items for which no supporting

Question:

You have just completed control testing for accounts payable. You found three items for which no supporting documentation could be located and noted the exceptions. The explanation for the lack of supporting documentation was that the payments were to a related company and often documentation was lax. You discussed the issue with your senior, who asked you to confirm the details with the related company. The confirmation agreed with the amounts in your client’s records, and you concluded that the deviations were anomalous. Your senior agreed with your conclusion and explained, “Since they are not exceptions, we do not have to adjust our audit approach. The partner has been really concerned about the time budget and we do not want to waste time on additional testing just because of poor documentation.”

REQUIRED

a. Using the professional judgement framework, explain what is wrong with the alternative procedures performed.

b. What is a possible explanation for the lack of documentation supporting the accounts payable with the related company?

Accounts Payable
Accounts payable (AP) are bills to be paid as part of the normal course of business.This is a standard accounting term, one of the most common liabilities, which normally appears in the balance sheet listing of liabilities. Businesses receive...

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