Page 31 - eBook Audit Of Financial Statement Components

iii. To determine ratios and trends for gross profit and

average payment period. An unusual change in gross

profit margin compared to previous year's figures signifies

the possibility of misstatements in recording purchases,

and
iv. To analyse expense accounts by reviewing the ratio

between each category of purchases with the total sales

and compare with the previous year's ratios to determine
the level of activity for the current year to ensure the

completeness of the purchase records.

TEST OF DETAIL OF TRANSACTIONS

Test of transactions are used to corroborate tests of details of

balances. Test of transactions are normally performed during
interim audit and in the form of dual-purpose tests. For example,

the cut-off test performed on purchases is a test of detail of

transactions. However, it serves to verify the account balance of
purchases at the end of the reporting period.

(a) Document inspections

• Vouching

Auditors vouch recorded purchase transactions to
supporting documents such as purchase orders, GRN

and supplier's invoices to verify the occurrence of the

transactions or, in other words, to identify that the
transactions are valid.

• Tracing

Auditors trace from purchase orders, GRN, supplier's

invoices to purchase journals and accounts payables

to verify completeness of records.

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