ACCA Audit and Assurance (F8) Practice Exam

Which of the following is an effective method to test payables?

1. Check Purchase Ledger against bank statements

2. Check Purchase Ledger against supplier statements

3. Reconcile payment frequencies with industry standards

4. Review employee expense reports

The correct answer is: Check Purchase Ledger against supplier statements

Testing payables is crucial for ensuring the accuracy and completeness of a company's liabilities. Verifying the Purchase Ledger against supplier statements is an effective method because it allows auditors to confirm that the amounts recorded as payable to suppliers are accurate. Supplier statements provide a summary of transactions, including outstanding balances, which can be directly compared to the company's records in the Purchase Ledger. Discrepancies between these two records can highlight potential issues such as unrecorded liabilities or incorrect amounts, or even omitted transactions, which could result in misstated financial statements. By engaging in this reconciliation, auditors can ensure that all known debts to suppliers are reflected accurately in the financial records, thereby enhancing the reliability of the accounts payable reporting and providing assurance to stakeholders about the company's financial health. Furthermore, this method helps ensure that the company is not mismanaging cash flow or exposing itself to potential penalties for late payments. The other methods mentioned do not provide the same level of direct verification of payables. Checking the Purchase Ledger against bank statements does not confirm the accuracy of amounts owed; it merely checks the cash flow. Reconciling payment frequencies with industry standards focuses on operational norms rather than actual account balances. Reviewing employee expense reports relates more to employee reimbursements rather than to the company's pay