Searching for unrecorded liabilities

How an audit team looks for liabilities missing at year end: later payments, supplier statements, choosing items, client questions and adjustments.

By Achekam · 11 October 2026 · 6 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya

Overstated assets get most of the attention at planning. The balance that more often embarrasses a file is the liability nobody recorded: December's electricity paid in February, a consultant's fee for work finished before year end and billed weeks later, a supplier dispute the directors knew about and did not mention. Each one makes the statement of financial position look healthier than it is, and none of them appears when you test what is already in the ledger.

That is the difficulty with completeness. Vouching recorded payables to invoices shows the recorded items are real; it says nothing about what is missing. A search for unrecorded liabilities works the other way round. It starts from evidence outside the payables ledger and asks, item by item, whether this obligation existed at the reporting date and should therefore have been recorded.

Where unrecorded liabilities hide

Before choosing tests, list where this client's process is most likely to miss a year-end obligation. In an owner-managed company the usual places are:

• invoices for services, which arrive after the month's books are closed, more often than invoices for goods;
• goods received before year end with no supplier invoice yet;
• utilities, telephone accounts and fuel cards billed in arrears;
• professional fees, including the audit fee for the year under audit;
• staff costs earned but unpaid: leave pay, bonuses already promised, employer contributions due after month end;
• tax for the period that is assessed or payable later;
• legal claims, disputes and undertakings given to third parties.

Your risk assessment should say which of these matter for this client and why. A distribution business with large monthly purchases needs a different emphasis from a professional practice whose main costs are salaries and rent.

Payments after year end and supplier statements

The most productive single test is usually a review of payments made after the reporting date. Take the bank statements for the period after year end, as close to the expected report date as practical, and for each payment you select, find the supporting invoice and ask one question: does this relate to goods or services received on or before year end? If it does, the amount should sit in payables or accruals at year end. If it does not, note why and move on.

Payments only find liabilities that have been paid. To catch the ones still outstanding, add the unpaid invoices the client has received since year end, and the suppliers' own statements. A supplier's statement shows invoices that supplier issued, whether or not the client recorded them, so reconciling it to the client's account for that supplier brings out invoices in transit, disputed amounts and items posted to the wrong period. ACCA's article on supplier statement reconciliations explains why a separate record is kept for each credit supplier and how reconciling suppliers' statements to those records helps find errors. It is a useful read for a first-year trainee before they are handed the payables paper.

Choose suppliers for statement reconciliation on risk, not on balance. A supplier with a nil or small balance at year end but heavy purchases during the year is a better candidate than the largest balance on the list.

Selecting items to test

How you select matters as much as what you test. In Achekam, sampling happens in Audit Intelligence: the team loads the population, Achekam risk-scores it and proposes a sample, and a reviewer who did not prepare the sampling plan approves it before anything is drawn. The methods available are random, systematic, monetary unit, specific items and all items. No sample size is proposed until materiality has been approved and a confidence level set, and every draw can be reproduced later from its stored seed, which answers the reviewer who asks how these particular payments were chosen.

For after-date payments, a common design is to take every payment above a threshold as specific items and sample the remainder. Record the threshold and the reason for it on the paper.

Journal entry testing adds a different angle. The team loads a whole-population journal extract as a CSV file and maps its columns, and Achekam flags entries such as manual, weekend, after-hours and post-close postings for staff to select and test. Post-close journals deserve attention here: an accrual reversed just after year end, or a liability released by a manual entry posted after the close, can be the trace of an obligation removed from the books rather than one never recorded. Achekam keeps the extract's hash and row count rather than the file itself, so store the extract with your evidence if you need it later.

Asking the client the right questions

Some liabilities are only found by asking. Put the questions in writing and keep the answers. Achekam's RFI console lets staff create, send and track requests for documents, answers and confirmations, and a request raised from the work item uses the same form and is tracked in the same console as every other request to the client.

Questions worth sending at final fieldwork:

1. A list of all invoices received since year end, paid or unpaid.
2. Any orders or contracts entered into before year end for which goods or services were received but not yet billed.
3. Any disputes with suppliers, customers, employees or the tax authority.
4. Any claims made against the company, or threatened, and the lawyers dealing with them.
5. Any amounts owed to directors or related parties not yet recorded.

The legal side of question four is a procedure of its own, covered in legal letters and litigation claims.

On the work item itself, each procedure lists what must be done and the documents required. A step is marked done only with a written response and its documents, or set aside with a reason, and steps are never deleted. The search therefore cannot be ticked off on a nod; somebody has to write what was found and attach the listing they worked from.

Proposing adjustments

Suppose the after-date payments review finds a February payment to a security company for October to December services, never accrued. The senior records a finding on the payables working paper describing the invoice, the service period and the payment, using the paper's Findings tab. On the accruals line of the lead schedule, the senior then records an audit adjustment with a reason that refers back to the finding. Lead schedules are built from the engagement's trial balance, so the reviewer can trace the adjusted line to the accounts behind it.

The client either posts the adjustment or declines. If it posts, close the finding with a note and refresh the papers from the final trial balance. If it declines, the item belongs on your summary of uncorrected misstatements, which in Achekam is kept as a working paper of your own; the reasons are explained in keeping the uncorrected misstatements summary. The same discipline applies on the income side, where revenue cut-off testing looks for sales recorded in the wrong year.

Before you sign off the payables area

Check that the after-date review ran close enough to the report date, that every supplier statement chosen has been reconciled or its gap explained, and that the client's written answers are on file. Then ask the question the tests cannot answer for you: given what you now know about this business, is there an obligation that none of these procedures would have caught?

General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.