How to Audit Accounts Payable with Data Analysis

Understanding that chain reveals much more than outstanding debts: it shows how well processes function, where risks hide, and where controls can fail. This article walks through how the accounts payable balance is created, how it is traditionally audited, and how data analysis can uncover patterns and anomalies that routine checks often miss.

What is the accounts payable balance?

An account payable represents a party to whom an organization still owes money. The “accounts payable” on the balance sheet therefore shows which invoices still need to be paid, or which obligations already exist but have not yet been settled.

That obligation does not arise at the time of payment but usually upon receipt of an invoice, or sometimes even upon a delivered service for which no invoice has yet been received.

As an auditor, you want to understand how these obligations arise, because it says something about the completeness and accuracy of the financial records.

From purchase to payment: the payables chain

The accounts payable balance results from several administrative steps. Each step records a different part of that obligation:

1. Purchase order: defines what is being ordered, at what price, and from which supplier.
2. Goods receipt or service confirmation: confirms that the goods or service have actually been received.
3. Invoice processing: the invoice is checked and linked to the order or receipt.
4. Posting and payment: the obligation is recorded in the ledger and later paid via the bank.

Not every company follows all of these steps (for example, approvals may be skipped), but the process above forms the core of the purchasing and payment cycle. This structure also makes it possible to connect data from different sources.

How the accounts payable balance is audited

When auditing payables, auditors usually focus on three main questions: are all obligations recorded (completeness), do the recorded obligations actually exist (existence), and are they accurate and recorded in the correct period (accuracy)?

To test these, a number of standard procedures are typically performed:

• Reconciliation with the balance sheet: the total of the accounts payable ledger is compared with the general ledger.
• Detail testing: invoices are selected and checked for approval, receipt, and correct posting.
• Cut-off testing: payments made after year-end are reviewed to see whether pre-year-end obligations were omitted.
• Analytical review: expenditures by month or supplier are compared with previous periods to identify unusual trends.

This approach provides assurance but is often time-consuming and based on samples. In environments where large volumes of data are available, analysis can help apply the same checks to a much broader population.

Data analysis within the accounts payable balance

Data analysis helps to visualize relationships and anomalies across the entire dataset. The audit objectives remain the same (completeness, existence, accuracy), but the approach changes.

There are many possible analyses, depending on the type of organization. In general, the following are most commonly used:

The “three-way match”

The three-way match is the best-known control within the purchasing and payables process. It compares three data sources:

1. The purchase order – what was authorized to buy;
2. The receipt – what was actually delivered;
3. The invoice – what was billed.

By linking these sources, you can identify:

• Invoices received without a corresponding delivery (booked too early);
• Deliveries without an invoice (obligation not yet recorded);
• Price or quantity differences compared to the original order.

The result says much about the process discipline within an organization. A well-matched process means the accounting records correctly reflect operations. Deviations are not always errors but do require explanation.

Supplier and invoice behavior

Examining how suppliers issue invoices can also reveal valuable signals. Frequent credit notes, invoice dates preceding delivery dates, or duplicate invoice numbers may indicate administrative weaknesses or insufficient approval controls. At the same time, such analyses provide insight into the rhythm of the supplier process; who invoices consistently late, or too early.

Other expense invoices (operating expenses)

Not all payables relate to goods or involve a receipt or purchase order. Think of rent, insurance, maintenance, or consulting fees. Here the focus is more on patterns over time and consistency.

For some services and expenses, such as rent or insurance, you expect a certain rhythm (e.g. monthly or quarterly billing). Data analysis can highlight recurring invoices, sudden increases compared with prior periods, or costs that fall outside the expected pattern.

For this type of expense, data analysis helps visualize consistency and predictability, allowing deviations to stand out naturally.

What can be learned from these analyses?

The aim of these analyses is not to prove errors directly but to understand the reliability of the process. For example:

• When deliveries and invoices align, this points to a stable and reliable process.
• Many deliveries without invoices may indicate delayed processing.
• Invoices without orders or receipts may have been booked outside formal procedures.
• Large differences in invoice dates or quantities may point to errors or to specific operational circumstances (rush orders, seasonal peaks).

The analyses make it visible where the process deviates so that follow-up procedures can focus where they are most needed.

Conclusion

The accounts payable balance is more than just a number on the balance sheet: it reflects the entire purchasing process. Understanding how that process works helps you use data to provide context and confidence.

By linking purchase orders, receipts, and invoices, you gain a clear view of how reliable the accounting records are and where potential issues may still lie.