## Audit of Purchases: Completeness & Analytical Procedures

### Completeness Assertion

Completeness = all genuine purchases made during the year are recorded. Risk: understatement.

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### Procedures

#### 1. Cut-off Procedures

Examine last-day transactions at period end (last 5 days).
Confirm goods received before year-end are recorded as purchases in the correct period.
Objective: no purchase omission.

#### 2. Goods in Transit

Identify goods in transit at year-end.
Check the agreed terms with the vendor regarding risk and reward transfer.
If risk has passed to the entity, the purchase must be recorded even if goods have not physically arrived.

#### 3. Written Representation from Management

Obtain a written representation confirming all purchases have been recorded.

#### 4. Analytical Procedures — Overall Reasonableness of Purchases

##### A. Consumption Analysis

Step	Action
1	Check Raw Material Consumed as per Manufacturing Account
2	Compare with previous year
3	If significant variation → ask management for reasons

Formula cross-check: Opening RM Stock + Purchases − Closing RM Stock = RM Consumed

##### B. Stock Composition Analysis

Compute: Raw Material as % of Total Stock.
Compare with previous year.
Significant variation → investigate.

##### C. Ratio Analysis (compare over 3 years)

Ratio	Formula
Creditors Turnover	Purchases ÷ Average Trade Payables
Stock Turnover	COGS ÷ Average Inventory

##### D. Quantitative Reconciliation

Opening Stock + Purchases − Consumption = Closing Stock

Any unexplained difference indicates errors in purchase recording or stock records.

Worked example

### Example 1

Consumption analysis: Opening RM ₹20L + Purchases ₹100L − Closing RM ₹15L = Consumption ₹105L. Previous year consumption = ₹70L. A ~50% increase without a matching increase in production output is a red flag. The auditor requests management's explanation and corroborates against production records.

### Example 2

Creditors turnover trend: Year 1 = 8×, Year 2 = 8×, Year 3 = 4×. A sudden halving suggests either purchases have dropped sharply (check with purchase register) or payables are overstated. The auditor investigates and compares with industry norms.

### Example 3

Quantitative reconciliation: Opening stock 1,000 units + Purchases 5,000 units − Consumption 4,800 units = Expected closing stock 1,200 units. Actual closing stock per books = 900 units. The 300-unit shortfall requires explanation — possible theft, unrecorded consumption, or recording error.

⚠️ Common exam mistakes

Ignoring goods in transit — failing to check risk/reward transfer terms results in missed purchases at year-end.
Listing only document-checking procedures and skipping analytical procedures — examiners expect analytical work too.
Treating quantitative reconciliation as only a closing-stock tool — it equally verifies purchase completeness.
Forgetting written representation from management as a completeness procedure.

Reference:

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Audit of Purchases – Completeness and Analytical Procedures

Worked example

⚠️ Common exam mistakes