Accounts Payable Audit Guide: Checklist and Best Practices
Staying on top of your accounts payable processes is key to your business’s financial health and bookkeeping. While end-of-month reconciliation can summarize your recent cash flow, it doesn’t often tell the whole story. The best way to visualize and optimize your accounts payable workflow is with direct monitoring, examination, and documentation. That’s what accounts payable (AP) audits are for.
An AP audit is a valuable risk assessment tool that examines how AP transactions are recorded, whether they’re compliant, and how accurately they reflect business operations. Auditing your accounts payable department can reveal issues from nagging inefficiencies to outright fraud. These assessments can be challenging, however, when a company’s financial processes are scattered across paper-based documentation and fractured accounting platforms.
This article covers what an AP audit is, when it's mandatory, what auditors look for, and how to run one step by step. We’ll also take a look at Slash, a business banking platform that helps track your accounts payable workflow with better visibility into vendor payments, invoices, employee card spending, real-time analytics, and more.¹
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What is an Accounts Payable Audit?
An accounts payable audit is an independent review of a company's accounts payable records to verify that invoices, transactions, and liabilities have been properly recorded in the general ledger and reflected accurately in financial statements.
It’s important to audit accounts payable processes because AP is vulnerable to weak internal controls, incomplete documentation, and fraud risk. A company’s net income can be increased by neglecting to report end-of-term payables or leaning on unrecorded liabilities. Whether intentional or unintentional, there may be legal consequences to misrepresenting profit metrics.
The audit process involves reviewing documentation, tracing items through the audit trail, and confirming whether the ledger reflects the company's actual payment obligations. The output is an accounts payable audit report, which summarizes findings, flags weaknesses and inefficiencies, and can also recommend corrective action. Ultimately, the audit establishes whether the company's accounts payable records, liabilities, and internal controls can be relied on for financial reporting.
Different types of auditors can conduct AP reviews, depending on context:
- Internal auditors handle routine internal control reviews as part of ongoing operational oversight, ensuring adherence to company policies and looking for inefficiencies.
- External auditors, who are hired from third-party groups, cover year-end financial statement audits for regulatory compliance or investor requirements.
- Finance managers may run monthly or quarterly reviews to catch issues between formal audits.
- Forensic firms can perform a deeper investigation when a company suspects fraud or wants to comprehensively evaluate their AP processes.
Are Accounts Payable Audits Mandatory for All Businesses?
Whether an accounts payable audit is required depends on the company type. Ever since the Sarbanes-Oxley Act of 2002, which was created after the Enron scandal, Securities & Exchange Commission (SEC) regulations have required financial statements from public companies. This entails a full audit of accounts payable balances and internal controls submitted for independent examination.
Similar requirements may also apply to healthcare organizations subject to regulatory oversight, government contractors who need to demonstrate proper use of public funds, and businesses with lender or investor reporting obligations written into financing agreements. These organizations often face audit requirements even if they're not publicly traded.
As far as regulations are concerned, standalone AP audits are usually optional for private companies. Just because they’re not required, though, doesn’t mean they aren’t recommended.
Finance teams that audit their accounts payable processes often catch errors before they compound. A duplicate payment discovered during a quarterly internal audit can be fixed a lot more quickly than the same duplicate payment discovered a year later during tax preparation. Regular audits shift the approach from reactive damage control to proactive quality assurance.
What Auditors Look For and Where Most Companies Fall Short
When submitting records for an accounts payable audit, every transaction must be complete, accurate, authorized, and compliant. Here’s what that means, and how you can avoid making mistakes:
Completeness
Auditors verify that every liability and balance was accounted for in the correct period. To do this, they may use cut-off tests and audit trail matching. Cut-off tests examine transactions around period-end dates (the last few days of the fiscal year and the first few days of the next) to ensure proper period assignment. Audit trail matching is the process of tracing financial transactions back to their original source documentation.
It can be difficult for a business to get a complete picture of their cash flow without a financial system that integrates with their accounting solution. Slash is a business banking platform that connects with accounting apps like QuickBooks Online, Xero, and Sage Intacct, which enables a company's accounts payable activity to be synced up and visible on a dedicated dashboard.
Common misstep
Invoices received before year-end that weren't reported. If an invoice is received on December 28th, 2025, it must be logged as a 2025 transaction, even if it isn't processed until the first week of 2026.
Validity
To protect against fraud, auditors must confirm a company’s transactions are legitimate. They may do this by contacting various vendors directly and requesting confirmations of balances owed. Discrepancies between company records and vendor confirmations, such as missing or incorrectly reported transactions, may trigger an investigation.
Common misstep
Payments to vendors who were never properly onboarded. If your company has made informal payments to suppliers, reporting inconsistencies may appear during an audit. Proper vendor onboarding with documentation requirements and approval processes can prevent this type of issue.
Accuracy
Auditors test whether invoice amounts recorded in the system match what was actually owed. This is often done via three-way matching, which is the act of comparing invoices to purchase orders and goods receipts, then ensuring the correct amounts are posted to the general ledger. All three documents should align.
Common misstep
Mismatched documentation. Whether due to human error or suspicious business practices, an AP audit will uncover any invoice that doesn’t match its purchase order.
Authorization
Auditors verify that consistent approval processes were followed and that any unusual transactions received appropriate sign-off. They'll take a look at whether purchases were authorized before goods or services were received and if invoice approvals matched established authority levels.
Common misstep
Single-person payment approval with no secondary review. While single-person approval processes may work for small businesses and startups, mid-sized businesses should consider multi-level approval chains. This can help prevent potential fraud and overlooked errors.
Compliance
All accounts payable transactions must follow Generally Accepted Accounting Principles, which are a set of accounting rules, standards, and procedures issued by the Financial Accounting Standards Board (FASB). GAAP compliance ensures consistency and comparability in financial reporting.
An auditor may start at your year-end income statements, then trace backwards through your general ledger back to a transaction’s source. This allows examiners to verify that the correct accounting procedures were used. It’s important for a standardized set of AP procedures to exist, as when companies use different accounting treatments for similar transactions, financial statements can become unreliable.
Common misstep
Inconsistent coding and undisclosed liabilities. Inconsistent coding happens when similar expenses are categorized differently across periods or departments, making trend analysis a challenge. Undisclosed liabilities are financial obligations that aren’t recorded on a company’s balance sheet, like an unofficial “IOU”.
Segregation of Duties
When a singular person controls the full payment process, internal controls weaken and fraud can become a significant risk. It’s wise to separate the responsibilities of invoice processing, payment approval, payment execution, and reconciliation so that all functions are kept in check.
Common misstep
One person in charge of approving, processing, and reconciling payments with no separation. Many small businesses may begin with one individual in charge of AP, but as a company scales, its hierarchy of authority should as well.
Audit Procedures for Accounts Payable: A Step-by-Step Guide
AP audits don’t always come from third parties. If you’re looking to audit your own company’s accounts payable processes, here are the steps you should follow:
Define the Scope and Timeline
The first step is agreeing on the audit period and the records you want to prioritize. You may want to examine a whole year’s cash flow, or you may only be interested in the last quarter. If you’re auditing 12 months of activity, you’ll probably only investigate a sample of transactions, whereas you could look through each and every payment when only considering one quarter.
Depending on what your goals are with the audit, you could also choose to review internal processes, invoices, purchase orders, bank statements, or the general ledger. If you begin your audit without establishing targets, your scope may be too broad and it could be difficult to make meaningful, specific progress.
Review Internal Controls
One of the first steps an auditor should take is examining internal controls, which may include approval workflows, vendor management, three-way matching, and the overall segregation of duties. Before testing specific transactions, it’s smart to identify the pathways they came down.
If policies aren’t being followed consistently, staff can’t explain procedures clearly, or you have significant gaps between documented rules and actual execution, you’ve got disconnects among your internal controls. These inefficiencies can be revealed through staff interviews and walkthroughs of sample transactions.
Reconcile the Accounts Payable Ledger and the General Ledger
The AP subledger tracks individual vendor invoices and payments, while the general ledger is the comprehensive, summarized record of all financial transactions. Auditors compare the AP subledger to the general ledger by investigating discrepancies and reviewing outstanding liabilities. The AP subledger should precisely match the general ledger without carrying unreconciled payables. Any difference may indicate posting errors, timing issues, or missing transactions.
Auditors should also keep an eye out for something called “plug” entries within either ledger. A plug entry is an unauthorized adjustment to a financial statement that forces two amounts to match and reconcile. Plugs are often credited to immaterial purchases, so if one of the last expenses on a ledger is a $150 service charge from a random vendor that conveniently aligns end-of-year totals, it could warrant a second look.
Test Vendors and Invoices
Reviewing each and every transaction from a year of company activity is often impractical. For this reason, auditors may test samples of vendors, invoices, and payment records to identify duplicates, unsupported payments, or overpayments. Sampling all types of transactions can help paint a complete picture of a company’s financial activity without actually analyzing each number.
Testing may include verifying invoice authenticity and approval, confirming payment amounts match invoices, checking for duplicate invoice numbers or amounts suggesting duplicate payments, and validating vendor banking information to detect potential fraud. Auditors may even send confirmation requests to certain suppliers asking them to verify balances owed.
Hunt for Unrecorded Liabilities
If liabilities aren’t recorded consistently, expenses can be understated and profits can be overstated. There are a couple different ways to locate unrecorded liabilities, including reviewing open purchase orders for goods received without payments and checking end-of-period data for items accepted without a corresponding record. Auditors may also investigate vendor statements that include pending payments.
If significant liabilities are discovered, it may be a sign that your team lacks procedures to identify and record period-end liabilities proactively. AP automation software can help automatically log all invoices and outgoing payments, which helps ensure missing liabilities are caught at the source.
Document Findings and Next Steps
Your accounts payable audit will likely close with a report covering discoveries and corrective actions. This report documents what was examined, what issues were found, how serious those issues are, what the risk potential is, and what the business should do to address them.
A good audit report will clearly distinguish between significant control weaknesses requiring immediate attention and minor procedural issues. They provide specific, actionable recommendations and establish timelines for implementing changes. A report that identifies problems without offering practical solutions or establishing accountability may not set effective groundwork for true improvement.
Accounts Payable Audit Checklist
Here’s a checklist that covers everything you’ll need to keep in mind before your AP audit, whether that audit is coming from a third party or your own organization:
✓ Organize documents: Ensure vendor invoices, purchase orders, payment records, and contracts are filed with a clear structure and made readily accessible.
✓ Reconcile AP balances: Make sure any and all outstanding balances match across both AP ledgers and general ledgers. Try to investigate and resolve all variances before the audit begins.
✓ Assess internal controls: Review your approval workflows, distribution of duties, and vendor onboarding procedures. If any of your processes are handled by a singular individual, develop a plan to improve upon internal controls with additional employees.
✓ Validate payment accuracy: Run duplicate payment checks and verify that existing payments match approved invoices. If you find discrepancies or irregularities, resolve and document them.
✓ Prepare supporting documentation: Compile vendor confirmations, contracts, purchase orders, and any other financial statements that substantiate recorded payables. Having these ready proactively can save quite a bit of time.
✓ Brief the AP team: Ensure everyone understands their role during the audit, knows where documentation is located, and can explain processes clearly.
Preparing ahead of schedule is key to identifying issues and maintaining healthy financial processes. It may also help save time and effort during your audit, which can be especially important when your organization is the one paying for it.
How Slash Helps You Stay Audit-Ready Year-Round
If a business only addresses internal controls after an audit identifies issues, they’ll be stuck treating the symptoms without addressing the root causes. In some cases, those gaps can be reduced earlier through the right operating infrastructure. Companies that struggle during audits could use help from systems that naturally create the audit trails, enforce the controls, and maintain the documentation that audits require.
Slash is a business banking platform built to help streamline AP processes. Our tools give companies access to transparent invoice and payment data, real time tracking and reporting, and improved financial control. The platform also integrates with popular accounting solutions like QuickBooks Online, Xero, and Sage Intacct, enabling smoother reconciliation and more accurate reporting.
The Slash dashboard consolidates financial activity in one place, helping teams better identify bottlenecks, manage accounts, and implement automation where it makes sense for their particular workflows. We also offer the Slash Visa® Platinum Card, which comes with up to 2% cash back on all business expenses. This card automatically categorizes each transaction, logging and sorting employee purchases the instant they happen. All of these features come together to provide clean audit trails and exceptional financial transparency.
Other Slash features include:
- Native crypto support: Hold, send, and receive stablecoins such as USDC and USDT across eight supported blockchains.⁴ Users can also convert company funds into stablecoins using our built-in on/off ramps.
- Diverse payment methods: Slash users can send global ACH and wire transfers to 180+ countries and move money domestically in real time through RTP and FedNow. Pro users pay no additional per-transaction fees.
- Connected AI agents: With support for Model Context Protocol (MCP), users can now connect AI agents directly to their business finances. Create cards, send payments, manage invoices, and query your transaction data, all through Claude, ChatGPT, and other MCP-compatible agents.
- Global USD accounts: The Slash Global USD Account enables foreign business owners to send and receive USD around the world without a U.S. bank account or registered LLC.³
If you don’t prepare for an accounts payable audit, the results might not be pretty. Get ready ahead of time by organizing your finances with the help of the Slash banking platform.
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Frequently asked questions
What can AP automation software do?
AP automation software can help reduce data entry errors, simplify invoice management, improve visibility into upcoming obligations, and ensure payments are accurate and on time. When it comes to auditing accounts payable processes, this type of software can help create a clear audit trail.
Accounts Payable Automation: 6 Best Practices to Streamline Your AP Process
Accounts Payable and Receivable Software: Choosing the Best for Your Business
How often should I be auditing accounts payable?
AP audits are typically performed annually, though certain companies may be interested in more frequent check-ins. If your financial statements are inconsistent and you're finding signs of potential fraud, you may want to start auditing accounts payable quarterly. Larger organizations may go through the audit process quarterly as well due to their sheer volume of incoming and outgoing payments.
How do auditors deliver their findings?
Auditors may deliver their results through a combination of verbal communication, interim briefings, and a formal written report.
