# Audit of Hire Purchase
## Core Concept
- Hire Purchase: Goods are let on hire to the hirer
- Hirer obtains immediate possession of goods from the owner
- Ownership transfers to the hirer only at the end, once all payments are completed
- Hirer has an option to terminate the agreement during its term
## Finance Lease vs Hire Purchase — Key Distinction
| Feature | Hire Purchase | Finance Lease |
|---|---|---|
| Ownership transfer | Yes — at end, after full payment | Depends (may not transfer) |
| Termination option | Available to hirer | Usually not |
| Nature | Asset purchase on installments | Right to use asset |
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## Audit Procedures
### Step 1 — Examine the HP Agreement
- Must be in writing
- Must be signed by all parties
### Step 2 — Verify the Agreement Specifies All of the Following Clearly:
| Element | Description |
|---|---|
| (a) HP Price | Hire purchase price of the goods |
| (b) Cash Price | Cash price of the goods (enables computation of finance charge) |
| (c) Date of Commencement | Start date of the agreement |
| (d) Number of Instalments | Total number of instalments to be paid |
| (e) Amount per Instalment | Amount of each instalment |
| (f) Date of each Instalment | Due date for each payment |
| (g) Mode of Payment | How payment is to be made (cheque, NEFT, etc.) |
### Step 3 — Verify Regular Payment
- Ensure instalments are being paid regularly as per the agreement schedule
- Check payment records against the agreement terms