What is one method for testing trade payables?

Testing trade payables involves various procedures to verify the accuracy, completeness, and legitimacy of amounts owed to suppliers. Inspecting contracts with suppliers for credit terms is a relevant method because it allows the auditor to confirm the terms under which goods or services were acquired. By reviewing these contracts, the auditor can ascertain whether the amounts recorded in the accounts payable are consistent with the agreed-upon terms, ensuring that the company is only recognizing liabilities it actually owes.

This method helps in validating the existence and completeness of trade payables. For example, if the contract specifies payment terms that differ from what has been recorded, this discrepancy could indicate potential issues such as unrecorded liabilities or incorrect accounting practices. Moreover, contract review helps assess whether the classification of the trade payables aligns with the relevant terms, such as the timing of when they should be settled.

In contrast, other options provided do not directly address the audit of trade payables. Confirming inventory balances directly from third parties pertains more to verifying asset existence rather than liabilities. Reviewing bank statements for employee salaries focuses on payroll expenses rather than payables, while obtaining a breakdown of provisions is related to different accounting estimates and doesn't directly validate the accounts payable balances.