Accounts Payable Audit Guide: Instructions & Checklist

Paying money to vendors and contractors is an inherently risky operation for any organization. These risks include inaccurate data, costly delays, incorrect payment information, incomplete documentation, and outright fraud. This is why organizations implement strict policies and procedures around spending money. The risk is real: The Association of Certified Fraud Examiners says that in 2024, organizations lost an average of 5% of revenue to fraud, with an average loss per case of $1.7 million! An audit will test whether those are sufficient to protect the organization and whether agreed-upon procedures are being followed by all stakeholders.

An accounts payable audit can be undertaken as part of a broader financial audit or as a targeted specific one. Its purpose is to uncover inaccuracies and inefficiencies in your accounts payable processes that can lead to losses, compliance issues, penalties, and reputational damage.

In this accounts payable audit guide, we’ll provide a checklist and detailed instructions for completing this type of audit.

What is an accounts payable audit?

An accounts payable (AP) audit involves a detailed investigation of a company’s financial statements, AP records, and processes. There are different types of AP audits, including:

• Compliance audits: These audits are conducted by government regulatory auditors or external auditors to verify compliance with laws, regulations, and contractual agreements. An example is the IRS’s audit of a company’s financial records to ensure that the information reported on their tax return is accurate and complies with tax laws.
• Operational audits: Typically performed by internal auditors, operational audits evaluate internal controls and entity performance.
• Forensic audits: The purpose of these audits is to investigate financial statement fraud, asset misappropriation, or other irregularities that can be used as evidence in a court of law or legal proceeding. These audits are typically conducted by accountants who have received specialized training in forensic auditing.
• Financial statement audits: These audits are conducted by external auditors and involve examining compliance with GAAP and IFRS frameworks. While annual financial audits are mandatory for public companies, private companies might need to conduct these audits when required by investors, creditors, or when preparing to sell the business.
• Accounts payable audit objectives: What do auditors look for?

Auditors look for any inaccuracies in financial transactions and reporting, including duplicate payments, non-existent vendors, fraudulent transactions, or inconsistent bank records. The objective is to ensure financial statements and transactions are compliant with relevant accounting standards and regulations.

While verifying financial records and documentation, the auditors check for:

• Completeness: Does the balance sheet reflect all transactions that occurred during the specific accounting period?
• Classification: Are all transactions recorded in the proper accounts?
• Legitimacy: Do the AP balances truly exist as of the reporting date? Are they legitimate accounts?
• Accuracy: Are all the amounts for transactions in your accounts payable recorded correctly in the correct accounting period?
• Rights and obligations: Does your company control the rights to the assets and are the liabilities its obligations?
• Valuation and allocation: Are all the values (assets, liabilities, and equity) in your financial statements accurately recorded, and have they been properly allocated?
• Presentation and disclosures: Have all relevant information and required disclosures been included in your financial statements and presented clearly and understandably?

Preparing for an accounts payable audit by external auditors.

Typically, businesses receive intimation of an external financial audit six months in advance. And, according to Kelly Hicks, Controller at Airbase, this is generally enough time to prepare.

Here are some steps to optimize audit readiness.

Create a task force and prepare a plan.

Identify the stakeholders and schedule a kickoff meeting. Stakeholders may include the subject matter expert (SME) who is in charge of the audit — typically the controller or AP manager. You may also want to include the CFO, someone from legal, IT, infosec, and operations.

This team should plan the steps to prepare for the audit while ensuring all the stakeholders understand:

• The standards and guidelines that the AP must comply with.
• The audit process and timeframe.
• The documentation and records required for the audit.
• The roles and responsibilities of each stakeholder during the audit.
• The potential impact of the audit findings on the organization.

Review current AP processes.

It’s important to critically evaluate all the steps involved in your AP processes including:

• The process in place to evaluate new vendors.
• Documentation requirements including contracts, SOC reports, and SOWs.
• How purchase orders are created (digital, paper, etc.) and managed (2-way and 3-way matching).
• How credit card purchases are recorded.
• The annual expense budget and expense policy.
• How transactions are routed for approvals and payments.
• Approvers and their authorities.
• The process followed to record and reconcile transactions.
• Invoice and receipt management (how they are received and processed).
• Procedures for making payments.
• Segregation of AP duties.
• Document storage system.

Ideally, clear and well-defined standard operating procedures (SOPs) should be in place for all accounts payable processes. While the audit team verifies whether processes are aligned with the company’s SOPs, standardized procedures enable AP teams to adhere to best practices consistently.

Gather documents with this checklist.

Auditors verify the following types of documents:

• Balance sheet: Summarizes your company’s assets, equity, and liabilities at a specific point in time, providing a snapshot of financial health.
• Cash flow statement: Tracks cash inflows and outflows, including cash equivalents like bank deposits and short-term investments, reflecting your company’s liquidity.
• Income statement: Also called a profit and loss statement, it shows your company’s revenue minus expenses over a period, detailing profits, losses, and overall performance.
• Statement of shareholder equity: Often part of the balance sheet but can be separate, it shows changes in shareholder value over an accounting period, indicating business health.

The specific documents that may be audited can include expense reports, purchase orders, and bank reconciliation statements. Ensure all pertinent documents are well-organized, clearly labeled, and stored securely in a location that is easy to access.

Here is a document checklist that can come in handy:

• Vendor invoices.
• Journal entries.
• Payment records.
• Expense reports.
• Purchase orders.
• Item receipts.
• Vendor contracts.
• Credit memos.
• Bank reconciliation statements.
• General ledger entries.
• Tax documents.
• Proof of payment.
• Access logs.
• Disputed invoices.
• Regulatory compliance documentation.
• Articles of incorporation.
• Board meeting minutes.
• Stock plans.
• 409a evaluations.

Evaluate vendor contracts and payments.

Verifying vendor details and payments made to vendors is a critical part of the accounts payable audit process. These steps will help you ensure your vendor management processes are efficient and compliant:

• Verify the vendor management process, including onboarding, document collection (tax ID, SOC 2 compliance, contract, etc.), and invoice submission process.
• Confirm the accuracy of outstanding payables by reaching out to vendors.
• Analyze payment terms and agreements to ensure they are correctly reflected in the accounts payable records.
• Assess contracts and agreements for completeness and accuracy in revenue recognition.

Review the approval process.

The efficiency of your accounts payable process depends on how streamlined the approval workflow is in your organization. Reviewing approval processes for payments, purchase orders, and expenses is crucial for maintaining financial control and accountability. This involves ensuring:

• Payments are authorized by designated personnel before processing.
• Purchase orders are reviewed and approved by relevant managers.
• Expense reports adhere to approval workflows and are properly justified.

Check purchases and match them with invoices and receipts.

Here are the steps to follow to verify POs and invoices:

• Verify the process of creating and approving purchase orders.
• Verify if invoices are issued for every purchase.
• Ensure that POs are matched with corresponding invoices and receipts.
• Check for invoice discrepancies/exceptions and address them.

Review transactions and cutoff procedures.

Examine all transactions for correctness, including credit card (both physical and virtual card transactions), cash, and bank transactions.

Cutoff procedures refer to the practices used to ensure that transactions are recorded in the correct accounting period. This includes verifying that:

• Transactions occurring at the end of a period are recorded in the appropriate period, preventing misstatements.
• Expenses and revenues are accurately captured in the period they relate to, even if they are processed or paid in a different period.
• All adjustments and accruals are made to reflect the correct financial position as of the reporting date.

Analyze bank statements and reconciliation processes.

Check if reconciled transactions match company records (invoices, POs, item receipts, bank statements). AP teams should also analyze bank statements and related agreements for consistency while conducting account-specific verification, such as comparing transactions to the source receipts and invoices.

Calculate the AP turnover.

Accounts payable turnover measures how efficiently a company pays off its suppliers by comparing the total purchases to the average accounts payable balance.

The formula is:

Accounts payable turnover = Total purchases / Average accounts payable.

If a business pays more than the amount invoiced, it’s considered an overpayment and is documented as a negative liability on the balance sheet. This can be the result of fraud, duplicate invoices, or payments.

Verify internal controls.

Confirm if internal controls are in place for:

• Invoice capturing, approval, and prevention of duplicate invoices.
• Purchase order creation and PO matching.
• Payment fraud prevention and data privacy.
• GL coding and categorization.
• User roles/access control.

Address errors.

After carrying out the above tasks, it’s time to document your accounts payable audit findings and address any deficiencies.

The audit team should also develop remediation plans, and implement and test them to ensure their effectiveness.

Get audit ready with Airbase.

With a slew of cutting-edge features and tools, Airbase helps businesses stay on top of their audit readiness.

Here are some of the highlights of Airbase that helps you ace accounts payable audits:

A clear audit trail.

Providing 360-degree visibility into spend is Airbase’s strong suit. The platform offers an automatic audit trail of all invoices, purchase orders, receipts, and transactions in real time, including:

• Date and time of transaction.
• Description of transaction.
• Amount of transaction.
• Username of user who initiated the transaction.
• Approver of transaction (if applicable).
• Audit log of all changes made to the transaction (if applicable).

In addition to completed transactions paid by virtual card, physical card, ACH, or check, Airbase allows users to view pending transactions, declined ones, refunds, cash back, and ACH loads and unloads from the funding account.

A single platform to view invoices, receipts, and transactions

Users can also view the approval record for each bill, invoice, PO, and payment across multiple cross-departmental stakeholders. Airbase also provides the full context for each invoice, including the email correspondence associated with each invoice.

Airbase gives users the visibility and control they need to ensure compliance by allowing them to apply filters to view transactions with missing receipts.

View missing documentation by applying filters for transactions

Centralized repository and document validation.

Airbase goes beyond many other AP automation software by not only offering a centralized repository for storing, managing, and retrieving key documents, but also validating them.

While the platform ensures capturing of contracts, SLAs, W-9 forms, and other documents, it uses AI to validate tax IDs of domestic and international vendors while flagging invalid IDs or vendors to prevent costly errors in payments.

AI-powered tax ID validation

Vendor management portal.

Verifying vendor details and payments is a vital component of every financial audit. Airbase’s vendor management portal allows users to capture every detail related to vendors, including their contact information, payment methods, and contract renewal dates.

Customized vendor onboarding questionnaire captures key information

Admins can tailor the vendor onboarding questionnaire to meet their internal compliance requirements. With the self-service portal, vendors can accurately input information and track the payment status. Airbase mitigates fraud risk by taking care of alerts and notifications related to:

• Updating of vendor’s account details by any user.
• Renewal dates for contracts.
• Vendor compliance status.

Custom access controls.

Implementing access controls and ensuring separation of duties are vital components of Sarbanes-Oxley Act (SOX). Apart from complying with SOX, access controls help prevent unauthorized access and payment fraud.

Airbase’s advanced user management features allow the configuration of unlimited user roles with granular access controls and customized accounting policies. Admins can define the level of access for each user based on their role (VPs, AP manager, accountant, C-level, etc.).

Thanks to HRIS integrations, Airbase makes it easy to import users. While admins can view user’s details (role, manager, department, subsidiary, and the assigned accounting policy), they can deactivate and reactivate users and delegate approvers.

Admins can create granular approval policies

This ensures every transaction is vetted by the appropriate stakeholders, across legal, finance, procurement, IT, and other departments, reducing the risk of unauthorized or improper expenses. Clear audit trails for all approvals help businesses stay audit-ready, giving auditors a quick view of who approved what.

AI-powered automated coding and reconciliation.

A key component of a financial statement audit is verifying bank statements and ensuring they align with invoices, payments, and purchase orders.

Using the power of AI, Airbase streamlines expense categorization and matches transactions to the correct accounts, eliminating manual errors.

Airbase automates expense categorization and GL syncing

AI intelligently matches POs with invoices, assigns the proper coding for each expense, and accurately reconciles transactions in real time. Advanced automation reduces the risk of human error, speeds up month-end close, and ensures accurate financial reporting.

Industry-leading fraud prevention systems.

Auditors assess fraud risks throughout the audit process and evaluate whether any suspicious transactions emerge that could indicate potential fraud. Implementing fraud prevention controls and ensuring transparency over AP processes are vital to curbing fraud risks.

Airbase ensures fraud prevention by implementing multi-layered approval flows, AI-powered transaction monitoring, and real-time alerts for suspicious charges.

Airbase uses AI to flag suspicious transactions

Vendor-specific virtual cards further mitigate risk by isolating transactions, while two-factor authentication and SOC compliance ensure robust data security. Additionally, Airbase’s dedicated fraud investigation team monitors activity 24/7, ensuring swift action and transparency in financial reporting, all of which support audit readiness.

Ace financial audits with Airbase.

When it comes to acing financial audits and reassuring your investors or shareholders, you need a robust AP automation and risk mitigation partner, such as Airbase.

With industry-leading security systems, granular spend controls, automated approval workflows, and AI-powered reconciliation, Airbase gives you all the tools you need to stay audit-ready.

The platform’s real-time alerts, vendor-specific virtual cards, and secure payment methods ensure transparency and compliance, protecting your financial integrity and brand reputation year-round.

And finally, here’s a financial audit checklist that can make your task of preparing for an audit easier: