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Accrued Expenses: Completeness, Measurement and Audit Evidence
Practical audit procedures, evidence points, and documentation considerations for Hong Kong audit teams.
Practice Overview
Last updated: 16 September 2026
Accrued expenses can be vulnerable to understatement because goods or services may have been received before the reporting date while invoices, approval records or payment requests arrive later. The audit focus is not limited to agreeing the closing listing to the general ledger: it is to understand the entity’s purchasing, receipt, period-end close and payment processes, identify where liabilities could be omitted or recorded in the wrong period, and design a response to the assessed risks. For Hong Kong auditors, a clear connection between the risk assessment, the assertions addressed, the procedures performed and the evidence obtained supports audit quality and reviewability.
Measurement also demands professional judgment. Some balances are supported by contract rates, usage records or supplier documentation, whereas others depend on management estimates of services received, allocations or variable charges. Evidence should be evaluated for relevance and reliability in the circumstances, and contradictions or post-year-end information should be investigated rather than merely filed. This article is general professional technical education for Hong Kong auditors, not engagement-specific audit, legal, tax or regulatory advice; teams should apply professional judgment, use current authoritative material and assess the facts and circumstances of each engagement.
Key Audit Issues
Completeness risk is concentrated around cut-off and decentralised spending
An unrecorded-liability risk may arise when receiving, procurement, operational approval and accounts-payable records are maintained by different functions or systems. Late invoices, recurring services, freight, utilities, professional fees, bonuses, maintenance and project costs can create different cut-off patterns. A broad expense trend review alone may not identify obligations evidenced outside the general ledger, so the risk assessment should identify the relevant sources and periods to be covered.
The accrued-expense listing may not be a complete or stable population
A listing that reconciles arithmetically to the general ledger can still omit manual journals, accruals held in sub-ledgers, reversals, reclassifications or balances recorded in other accounts. If reports are produced after close or repeatedly amended, the team may test a version that does not represent the reported balance. Documentation should identify the source, parameters, date, reconciliation and treatment of material reconciling items.
Measurement is affected by estimates, allocation methods and incomplete source information
Management may estimate amounts using contractual rates, consumption data, timesheets, milestones, historical run-rates or supplier information. The relevant question is whether the method and inputs are reasonable for the obligation at the reporting date, not whether a later invoice matches precisely. Risks increase where estimates involve variable pricing, incomplete service-delivery data, unusual transactions, management bias or unexplained changes from prior periods.
Classification and presentation can obscure the underlying obligation
Amounts labelled as accrued expenses may require consideration alongside trade payables, provisions, employee-related liabilities, related-party balances, capital expenditure or other financial-statement captions. Where timing or amount is uncertain beyond a routine operating accrual, management’s accounting and disclosure analysis may need more focused evaluation under the relevant financial-reporting framework. The audit file should explain the conclusion reached for material or unusual items.
Weak corroboration and unclear conclusions reduce audit quality
Management schedules, explanations and written representations can be useful, but do not by themselves resolve completeness or measurement risk. A file is less persuasive when it contains generic tick marks, unsupported assertions that accruals are reasonable, or post-year-end payments without a documented link to reporting-date conditions. An experienced reviewer should be able to understand the procedures, evidence, exceptions, judgments and conclusion without relying on oral explanation.
Tailored Audit Procedures
Map the process and focus the risk assessment
Obtain an understanding of how purchase commitments, goods and services received, invoices, payment runs, manual journals and period-end accruals are initiated, approved, recorded and reviewed. Identify relevant systems, locations, outsourced processes and personnel, and consider fraud risk, management override, prior-period exceptions, unusual business activity and changes in close processes when designing the response.
Reconcile and validate the accrual population
Obtain the closing accrued-expense schedule and reconcile it to the general ledger and financial-statement caption as appropriate. Evaluate the report source, extraction date, period parameters, manual additions, reversals and reclassifications. Perform targeted checks of completeness and accuracy appropriate to the intended procedure, retain the final version tested and investigate material discrepancies or unusual movements.
Perform a risk-directed search for unrecorded liabilities
Select post-year-end payments, supplier invoices, credit notes, receiving records, expense claims, purchase orders and other relevant documents based on the assessed risk and reporting-date cut-off. Determine whether the underlying goods or services were received before the reporting date and, if so, whether the liability was recorded completely and in the appropriate period. Extend or alter the work when exceptions, late processing or unusual transactions indicate a broader population risk.
Test significant and higher-risk accruals to underlying support
For individually significant, unusual or judgmental balances, inspect relevant contracts, purchase orders, service records, correspondence, supplier statements, rate schedules, timesheets, usage data or other support. Assess whether the evidence supports the existence of an obligation and the amount recorded at the reporting date. Give particular attention to non-routine manual entries and balances for which management’s explanation is not independently corroborated.
Evaluate management’s measurement method and assumptions
Reperform relevant calculations and assess the consistency of the estimation method with the nature of the service or obligation. Compare key assumptions with available internal and external evidence, investigate significant differences between recorded accruals and subsequent invoices or settlements, and evaluate whether those differences provide evidence about conditions at the reporting date. Consider whether changes in methods, inputs or estimates are appropriately explained and supported.
Use analytical and completion procedures to evaluate the result
Develop expectations using relevant relationships such as expense categories, headcount, consumption, contract terms, prior periods, budgets or operating activity, while recognising that analytics may not by themselves address completeness. Investigate unexpected fluctuations, assess identified misstatements and control deficiencies individually and in aggregate, and reconsider the planned response where evidence conflicts with expectations. Document the nature, timing and extent of work, the evidence evaluated, exceptions, consultations where relevant and the basis for the final conclusion.
Controls and Evidence to Consider
Period-end cut-off and accrual review control
A disciplined close process can require responsible functions to identify material goods and services received but not invoiced, prepare support for proposed accruals and explain significant reversals or changes. Evidence may include dated close checklists, accrual schedules, supporting documents, preparer and reviewer sign-off, and documented resolution of exceptions.
Three-way information and supplier-account reconciliation trail
Where relevant to the entity’s process, links among purchase orders, receiving or service-acceptance records, invoices and payment records can support identification of obligations. Supplier statements, aged unmatched receipts, open purchase-order reports and post-year-end payment reports may provide complementary evidence, provided the auditor evaluates their completeness, source and limitations.
Controlled estimation support and review
For estimated accruals, retain the calculation, source data, contractual or operational basis, assumptions, allocation methodology, comparison with subsequent information and explanation of significant changes. A review control should evidence challenge of unusual assumptions, arithmetic accuracy, materiality and whether the proposed accounting is consistent with the entity’s financial-reporting policies.
Journal governance and audit-trail preservation
Manual accrual, reversal and reclassification entries should have clear preparer and approver identities, dates, supporting rationale and links to the relevant schedule. System access controls, exception reports and retained versions of key listings can help establish who recorded or changed an entry and support the auditor’s evaluation of completeness, accuracy and potential management-override risk.
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