• TrueUp Team

Performing an AP Search

A search for unrecorded liabilities ("AP Search" or "UL Search") is necessary because AP invoices are typically not received until the month after a service is used.


For example, if I used Amazon Web Services for my company in December, but do not receive their December invoice until the end of January, it's possible that my accounting or accounts payable team missed this invoice and did not accrue for it.


This poses a risk that a liability related to the year under audit was not recorded or accrued for, therefore understating a company's liabilities.


MAKING SELECTIONS

When you're performing an AP Search, you need to make an adequate number of selections to get a sufficient amount of coverage over testing.


Selections for an AP Search come from a listing of subsequent cash disbursements (subsequent to year end). This is because payments made after year end have a high potential to relate to invoices for services in periods prior to year end.


So, by looking at payments that are made after year end, you are tasked with seeing if those payments relate to payments on invoices that belong to the period under audit or the period subsequent to the year under audit. This allows you to conclude whether the liability is or is not properly included or excluded from the accounts payable or accrued expense balances at year end.


In order to assure an adequate amount of coverage, a standard way to go about making AP Search selections is to target the largest payments (i.e. any payment greater than $100,000) until you have a high percentage of coverage (i.e. 70% or 80% of payments are selected).


PERFORMING THE SEARCH

After you've made your selections from the subsequent cash disbursement listing, you will then request the invoice support related to each selected payment.


Once you receive the invoice support, you will take note of the related service period in your testing workpaper. If the service period relates to a period prior to year end, then you should expect this invoice to appear in either the Open AP List (or AP Aging as of year end) or the Accrued Expenses detail. If the invoice does not appear in either of these schedules, you must inquire to the client and confirm this is potentially an error (a missed recorded liability).


If the services period relates to a period after year end, then you should expect this invoice not to appear in either the Open AP List or Accrued Expenses detail.


NOTE: An important step to this process is to tie the total balance of the AP listing and the Accrued Expenses list to the trial balance to ensure a full population.

Recent Posts

See All

Purpose and Flow of Tie Outs

The purpose of a tie out is to ensure all balances per the financial statements and trial balance match the underlying accounting detail and schedules. For example, if you are performing a tie out of