Expenditure Cycle
Assertion Purchases
Occurrence/ Existence  Inspect the supporting
documentation (purchase
order, supplier delivery note,
GRN and invoice) to confirm:
 That the (external) documents
are made out to the entity and
are from an approved supplier
 All documents are correctly
cross-referenced to each
other.
 Each document is signed by
the designated authority e.g.
chief buyer, receiving clerk
 The goods purchased are of a
type used by the company
inspect the cash payments
records/bank statements to
confirm that the goods were
appropriately paid for.
Accuracy/Valuation and  Confirm the mathematical
allocation. accuracy of the invoice by
recalculating all extensions
(quantity x price), casts and
discounts
 Agree the quantity of items
charged on the invoice,
against the quantity on the
goods received note
 Confirm prices and trade
discounts used on the invoice
by inspection of the order or
purchase contract
 Recalculate VAT, and by
inspection of the invoice,
confirm that discounts are
taken into account prior to the
calculation of VAT
 By inspection, confirm that the
VAT number and details of the
supplier as well as the
supplier’s VAT number are
clearly presented on the
supplier tax invoice.
Payable
 The auditor should:
 Record the number of the
last GRN for the year (cut-
off number)
 Select from the purchase
journal, material purchases
entered during the last two
weeks of the year and trace
to the relevant GRN and
supplier delivery note (via
the invoice) Inspect these
documents to confirm that
the GRN number is lower
than the cut-off number
and that the documents are
dated prior to the year-end
date.
 Circulate external
confirmations to a sample
of both local and foreign
creditors.
 agree the total of the
accrual and creditors
control accounts in the
general ledger to the trial
balance reperform casts of
the creditors control
account, and the creditors
list
 Identify any debit balances
on the creditors list,
establish the reason with
the purchases manager and
consider whether the
balances should be
transferred to debtors
Select a sample of creditors
(which includes the
company’s major suppliers)
from the creditors list and
obtain the year-end
creditors reconciliations
performed by the creditors
clerks
 Reperform the casts of the
reconciliation
 Agree balances on the
reconciliation to the
creditors statement and
creditors listing
 Test the logic of the
reconciliation
 by inspection of the
supporting documentation
and by inquiry and
confirmation, confirm the
validity of reconciling items
 If applicable, select a
sample of foreign creditors
from the creditors list and
by scrutiny of the
supporting documentation
(invoice), determine the
amount owed to the
creditor in the foreign
denominated currency
 Obtain from a financial
institution or suitable
publication, the applicable
currency exchange rate at
the financial year end (spot
rate) and
 Using the spot rate,
compute the amount owed
to the creditor at the
financial year-end in local
currency
 Compare this amount to
the amount recorded for
the creditor on the
creditors list and, if
necessary, request
adjustment. The foreign
creditor will have been
raised initially at the rate
ruling at transaction date
i.e. the date on which the
risks and rewards of
ownership passed, and may
require adjustment for any
change to the exchange
rate
 Obtain a list of accruals
from the client
 Cast the list
 Agree the total on the list to
the account in the general

Cut-off/Obligations  Inspect the dates on the
supplier delivery note, goods
received note and invoice to
confirm that the goods were
received during the
accounting period under
audit.
 NB obtain a sample of
purchases made through the
year and then request for the
documents noted above.
Classification  Inspect the purchase order to
determine the expense or
asset account to which the
purchase should be allocated
and posted and trace the
posting from the purchase
journal to the designated
expense or asset account in
the general ledger Establish
the description of the goods
purchased (by inspection of
the purchase documentation)
to confirm that the
classification of the purchase
is appropriate e.g. the
purchase of a non-current
asset has not been written-off
as an expense
 Inspect the purchase journal
(and invoice) to confirm that
VAT has been correctly
allocated and posted
 Inspect the supplier’s account
in the creditors’ ledger to
confirm that the purchase was
correctly posted from the
purchase journal.
ledger, the trial balance and
the statement of financial
position
 Agree amounts recorded on
the accrued list to invoices,
statements, etc., and
reperform any calculations,
e.g. leave pay accrual.
 Inspecting the supporting
documentation,
statements, invoices, etc. to
confirm that they are:
 Made out in the name of
the company
 In respect of purchase of
goods (or services) which
are used by the company.
 By enquiry of management
and reference to the audit
documentation on
purchases and scrutiny of
the trade payables
account, confirm that :
 Only amounts payable to
trade creditors with in
twelve months have been
included in the account
 That the balance on the
account does not include
amounts which should not
be included, e.g. short term
borrowings, provisions,
bank overdraft.
Completeness  To test the completeness of
purchases, the auditor will test
from a document recording
the receipt of the item
purchased to the recording of
the purchase in the records.
The auditor may choose a
random sample of GRNs from
the sequence of GRNs and
trace them through to the
corresponding invoices.
 Compare the list of
creditors at the current
year-end to the previous
year-end, to identify:
 creditors on the previous
list who do not appear on
the current list, and
 creditors balances which
are significantly smaller at
the current year-end
 and by enquiry and
inspection, determine and
evaluate the reason Inspect
the creditor’s
correspondence file for
correspondence relating to
unsettled disputes with
suppliers, and by discussion
with management,
determine whether any
adjustments to creditors
are required, e.g. the audit
client may be disputing the
actual delivery or condition
of the goods delivered and
may not have raised the
liability
 If available, inspect the list
of GRNs which were
unmatched to invoices at
year-end. (This list should
have been obtained by the
auditor at year-end when
document cut-off numbers
were taken).
 Confirm by inspection, that
a journal entry raising the
corresponding creditors at
year end, has been passed,
and that the amounts
raised are correctly
computed by :
 Obtaining the price of the
goods received (from the
order or pricelist or
corresponding invoice if it
has arrived)
 Recomputing the amount
owed