Three-Way Match: How It Works and How Auditors Test It

A three-way match is an accounts payable control. Before an invoice is paid, someone (or the system) checks that three documents agree: the purchase order, the receiving report, and the vendor invoice. If they agree, the company is paying for something it ordered, at the price it agreed, that actually arrived.

The three documents

Document	Who creates it	What it proves
Purchase order (PO)	The buyer, approved by someone with authority	The purchase was authorized, at this price and quantity
Receiving report (or goods received note)	The warehouse or the person who received the service	The goods or services actually arrived, in this quantity
Vendor invoice	The supplier	What the supplier is asking to be paid

What gets compared

• Vendor: the same supplier on all three.
• Item and quantity: the invoice does not bill for more than was ordered or received.
• Price: the invoice price matches the PO price.
• Terms: payment terms, discounts and freight agree with the PO.

Most companies set a tolerance, for example 2% or $100, so small differences do not stop payment. Anything above the tolerance goes to someone for approval.

Two-way and four-way matches

• Two-way match: PO and invoice only. Common for services, where there is nothing to "receive" in a warehouse.
• Four-way match: adds an inspection or quality report, used where goods must pass inspection before they are accepted.

Three documents that happen to mention the same vendor are not a three-way match. The documents have to describe the same purchase.

Common exceptions

1. Price variance. The invoice price is higher than the PO price.
2. Quantity variance. Billed for 100 units, received 90.
3. No receiving report. The goods have not been received, or nobody recorded it.
4. No PO. An invoice arrives for a purchase nobody approved in advance (often called a "no-PO invoice").
5. Duplicate invoice. The same invoice entered twice, sometimes with a slightly different invoice number.

How auditors use the three-way match

Auditors meet the three-way match in two ways.

As a control to test

If the audit plan relies on the AP control, the auditor tests whether it operated all year. Typical attributes for each sample item:

1. An approved PO exists, dated before the invoice.
2. A receiving report exists for the goods or services.
3. Quantity and price agree across the documents, or the difference is within tolerance.
4. Differences over the tolerance were approved by the right person.
5. The match happened before payment.

Our test of controls guide covers sample sizes and what to do when an attribute fails.

As evidence in substantive testing

When vouching expenses or AP, the auditor uses the same documents as support: the PO for authorization, the receiving report for occurrence and cut-off, and the invoice for amount. The receiving report date is the key to cut-off: goods received before year end belong in this year's liabilities even if the invoice arrives in January. See vouching vs tracing and our guide to the accounts payable audit.

Where Warp fits

Warp vouches GL and AP samples to the client's invoices, purchase orders and receipts. Each result shows which fields agree and which do not, and links to the page in the document it came from, so the reviewer can check a match in seconds. See test of details in Warp.