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1 3 - 8 Tests for Unrecorded Payables Unrecorded payables result in two potentially material misstatements in an entity's financial statements: understated liabilities, because the
Tests for Unrecorded Payables
Unrecorded payables result in two potentially material misstatements in an entity's financial statements: understated liabilities, because the credit to payables is not recorded, and overstated net income, because a corresponding expense is not recorded. As a result, auditors typically perform a search for unrecorded payables during yearend substantive testing.
Required: Prepare an audit program to search for unrecorded payables.
Liability for Loss Contingencies
Harper has completed tests of accounts payable and other liabilities for Hawthorne Corporation, and now plans to determine whether there are any loss contingencies arising from litigation, claims, or assessments.
Required: Discuss the procedures Harper should follow to audit the existence of loss contingencies arising from litigation, claims, and assessments.
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