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I have noticed that when testing for expenses (substantive), audit assistants usually select samples from the ledger and ask for the supporting documentation. That’s the conventional method they normally follow (regardless of the results of the preliminary analytical review); However, during the preliminary analytical review, if Stationary expenses has decreased by >15% from 2013 to 2014, that should indicate that there are possible unrecorded expenses.
Doesn’t that mean that the testing should be supporting documentation to ledger and not vice-versa?
Most tests of detail should be done in both directions. So:
1 As you say, pick amounts debited to expense accounts and ask to see the invoice to ensure that the amount has been properly coded etc.
2 Look through the files of invoices and trace to the appropriate expense accountign the ledger (completeness).
If there was a material decrease in stationery expenses (material to the financial statements, not the expense itself) then you would probably:
1 Ask management for an explanation (thy might have found a cheaper supplier) then verify that the explanasion given seems correct.
2 If stationery is bought mostly from one supplier, trace from the credit entries in their payables account to the debit of the stationery account.
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