To test for overstatement cutoff amounts when auditing accounts payable, the auditor should trace receiving reports issued before year-end to related vendors' invoices to make sure they are not recorded as accounts payable.

Question

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To test for overstatement of accounts payable, the auditor should ensure that liabilities are not overstated by verifying that only valid transactions are recorded. Tracing receiving reports issued before year-end to related vendors' invoices checks that liabilities incurred before year-end are recorded in the correct period, which is a test for understatement, not overstatement.

To Test for Overstatement Cutoff Amounts When Auditing Accounts Payable