Describe the procedures to conduct audit of sales under hire purchase agreement.

Auditing and Assurance Revision Questions and Answers

Hire purchase agreement means an agreement under which goods are let on hire where the hirer has an option to purchase them in accordance with the terms of the agreement, such as possession of the goods is delivered by the owner and the user agrees to pay an agreed amount in various instalments. While conducting audit of sale under hire purchase agreement, the following points are suggested:
 Hire purchase agreement is in writing and is signed by all parties.
 The hire purchase agreement specifies clearly:
— the hire purchase price of the goods,
— the cash price of the goods,
— the date on which the agreement shall be deemed to have commenced,
— the number of installments by which the hire purchase price is to be paid, the amount of each those installments, and the date,
 Ensure that payments are being received regularly as per the agreement.
 Ensure that correct accounting entries are made for interest and towards the principal amounts.
 Obtain balance confirmation from the parties of the outstanding balances on regular basis.

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