Final answer:
Auditors should confirm accounts payable with creditors when transactions involve related parties, as these could indicate complex or non-arm-length dealings, potentially leading to financial statement manipulation.
Step-by-step explanation:
It would be advisable for the auditor to confirm accounts payable with creditors particularly in the circumstance of the existence of related-party transactions with suppliers. This scenario could potentially indicate complex transactions that might not be at arm's length, meaning the transactions may not be conducted under the same terms as they would be with an unrelated party. Auditors need to pay special attention to related-party transactions because they can be used to manipulate financial statements. For example, a company might try to hide liabilities or losses by dealing with companies it has control over or a special relationship with.
Confirming accounts payable with creditors is a standard auditing procedure used to verify the accuracy and completeness of a company's recorded obligations. Such confirmation is valuable for detecting fraud, errors, or omissions in the recording of accounts payable. In the case of related-party transactions, the risk of misstatement may be higher due to the potential for undisclosed terms or preferential treatment that would not be available from independent third parties.