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Audi tExpenses:Asser t i ons,Ri sksandPr ocedur es https://www.wikiaccounting.com/audit-expenses

Meani ngofexpenses

Ex pensesdepi ctadec r eas ei neconomi cbenefi t sf ort heaccount i ng per i od.Ex pensesar ei nt hef or m ofout flowsofasset sorpayment sof oper at i ngl i abi l i t i eswhi c hr esul t si nadecr eas ei nequi t y .Thi si sot hert han t hoser el at i ngt odi st r i but i onst oequi t yshar ehol der s . Ex pensesar er educedf r om t her ev enuesi nor dert oar r i v eatt henetpr ofit f ort heaccount i ngper i od.Expensesi ncl udeut i l i t i es ,offices uppl i es , t r anspor t at i on,pr of es si onal f ees,cons ul t i ngf ees ,andi nsur ance. I nfinanci alst at ement s ,expensesar esomet i mescal l edgener aland admi ni st r at i v eexpens esoroper at i ngex penses.Theyar er ecor dedonl yi n t hei ncomest at ementi nt heexpensessect i on.Theyar enotshowni not her s t at ement sl i k ebal ancesheet ,s t at ementofchangei nequi t y ,orst at ement ofcashflow. Her e,wewi l ldi scusst heov er al laudi tpr ocedur esf orexpensest hat nor mal l yper f or m byaudi t or s ,k eyaudi tas ser t i onusedbymanagementt o r ecor dst heexpenses ,andt estbyaudi t or .

Audi tAsser t i onsf orExpenses

Audi tofexpensescanbedonebyt es t i ngv ar i ousaudi tass er t i onsof compl et eness,acc ur acy ,occur r ence,andcut off.Audi tpr ocedur esar e r el ev antt ogat herappr opr i at eaudi tev i denc ei nor dert omak eaconcl usi on wi t hr egar dst oexpens es . Theunder s t at ementofex penseswi l l mak el ookfi nanci alst at ement sbet t er t hani ti s .Ther ef or e,t heaudi t or sshal l pr i mar i l yl ookatsuchcasesofan under s t at ement .I nt hecaseofaudi t i ngexpenses ,t hemosti mpor t ant as pecti st hecompl et enessofr ecor dsi nt hei ncomest at ement . Thel ackofst r ongi nt er nalcont r ol swi l ll eadt oanunder s t at ementof ex penses.Thi susual l yhappensduet of r audcommi t t edbyt hei nt er nal s t aff.Neart heendoft her epor t i ngdat e,t hemanagementmayt r yt odel ay i ncur r i ngexpensesi nor dert oav oi dget t i ngt heex pensesbei ngr epor t ed. Henc e,t heymi ghtdot hi sbyr ecor di ngi nt henextacc ount i ngper i odand av oi di ngt hecur r ent .Thi si ssi mpl yunder s t at i ngt hepr ofit sandneedt obe check edbyt heaudi t or s .

Her ear et hek eyaudi tasser t i onst ot es tt heass er t i ons :

Complete ness

The expenses have been incurred are complete records and timely recorded up to date of reporting

Cut-of

The expenses have been diferentiated as per the accrual system and recorded in the proper accounting period.

Accuracy

The expenses are recorded accurately for the amount

Occurrenc The expenses have been actually incurred and related e to the business.

Classificat The expenses have been properly classified as factory, ion administration and selling expenses if necessary.

Ri skofMat er i alMi sst at ementf orExpenses Thepr i mar yr i s kofmat er i almi sst at ementi st her i skt hati nt er nalcont r ol maynotabl et odet ectorpr ev entt hei ssuesr el at edt opr ocedur est hatar e i nher ent .I ti st hecombi nat i onofbot hi nher entr i skandcont r olr i sk. Ther i skofbei ngsuscept i bl et omi sst at ementduet ot henat ur eoft hedebt i st hei nher entr i s koft hedebt .Cont r olr i s koccur swhent hei nt er nalcont r ol s y st em oft heaudi t eef ai l st opr ev entordet ectmat er i almi sst at ementi nt he debt .

Thepr i mar yi nher entr i skwoul dbet heunder s t at ementofex penses .Thi s woul dl eadt oov er r epor t i ngt hepr ofit si nt hecur r entaccount i ngper i od. Thi shappenswheni ncent i v esar el i nk edt opr ofitorasr es ul tofi nt ense pr essur ef r om wi t hi nt hecompany . Tak e,f ori ns t ance,br anchmanager sar egi v ena5% i ncent i v ebonusasa per c ent ageofpr ofiti facer t ai nbus i nes si sachi ev ed.I nt hi scase,t he

br anchmanagerwoul dt r yt oov er s t at epr ofitbyunder r epor t i ngt hepr ofit s duet ot hei nher ents t r uct ur eoft hei nc ent i v e.

Thev ar i et i esofi nher entr i sk st hatmayoccuri nt heaudi tofex pensesar e asf ol l ows:

1.

Theexpenseshav ebeenaccr ued,notr ecor dedandnoty etpai d.

2.

Theexpensesar er ecor dedasassett ounder s t at et heex penses andov er s t at et heasset .Tak ef orani nst ance,i ns t al l at i onofnewl y pur c hasedmachi ner y .

3.

Thegener alr epai r sandmai nt enanc eexpensesar eaddedt ot he cos toffix edasset s.

4.

Changi ngt heaccount i ngper i odt ocl os ebook sear l y .Thi shas al t houghhappenedv er yr ar el y .

5.

Br eaki ngdownt hel ar geex pensesi nt osmal l eronest oav oi dchecks andcut offpr ocedur esempl oy edbyt heaudi t or s .

Thev ar i et i esofcont r olr i sk st hatmayoccuri nt heaudi tofex pensesar eas f ol l ows : 1.

Di vi di ngdut i esamongv ar i ousst affst omak epur chas es ,r ecei v e goodsandpr operaccount i ngi nt hes y st em.

2.

Pr operaut hor i zat i ononal l expensesandpayment

3.

Mat chi ngt hepur chasei nv oi cewi t hamountofgoodsr ecei v edal ong wi t ht r anspor t at i oni nv oi ce.

Tak ef orex ampl e,i ncasenoaut hor i zat i oncont r oli sempl oy ed,t her i s kt hat ex penseshav ebeeni ncur r edf orfict i t i ousorper sonalpur pos esi ncr ease.

Subst ant i veAudi tPr ocedur esf orExpenses I nt hecas eofexpenses ,subs t ant i v eaudi tpr ocedur eswoul di nc l ude subst ant i v eanal yt i calpr ocedur esandt es t sofdet ai l s .Anal yt i cal pr ocedur esmeangat her i ngt heaudi tevi denc ewi t hr espectt oaudi t as ser t i ons .Theaccount i ngt r ends ,financ i alr at i os ,andr el at i onshi ps amongdat aar eanal yz edi nsuchapr ocedur e.

Fol l owi ngar es omesubs t ant i v eaudi tpr ocedur est obef ol l owedwhi l e audi t i ngex penses :

1.

Obt ai nal lt hesuppor t i ngdoc ument ssuchasi nv oi ces ,v ouc hersl i ps, et cf ort heexpensebei ngi ncur r ed

2.

Per f or mf ur t heraudi tpr ocedur eswhenexpensesr eac ht heamount abov et hebudgett hr eshol dsi gni ficant l y( bymor et han10%)

3.

Checkwhet herpr operaut hor i z at i onhasbeendonewi t hr egar dt o ex penses.

4.

Ver i f yt hatv endor sexi s tt hr ought hi r dpar t yconfir mat i onandmaki ng sur pr i sevi s i t swhengoodsar er ecei v edandaudi t i nggoodsr ecei v eda not ewi t ht hephy si calpur chas ebei ngr ecei v ed.

5.

Ensur et hatpr opercl assi ficat i onhasbeenmadef orexpenseswi t h r espectt or ev enueexpendi t ur eandcapi t alex pendi t ur e.

6.

Ver i f yt her el at edpar t yex pensesandensur et heyar ebei ng r epor t edwi t hnot est ofi nanci alst at ement swher enec ess ar y .

Audi tPr ocedur eofOper at i ng Expenses Audit Procedures

Audi tpr oc edur esar emai nl yusedbyaudi t or si nor dert odet er mi net he ov er al l qual i t yoft hefinanci al i nf or mat i ont hati spr ovi dedbyt hei rcl i ent s , t or ’ sopi ni on. subsequent l yr es ul t i ngi nt heexpr essi onofanaudi

Asf arascompanyex penser ev i ewsar econcer ned,i tcanbes eent hat audi t or sar esupposedt oev al uat et heex pendi t ur esi nor dert omak es ur e t heywer enecess ar yandi nl i newi t hi nt er nalpol i ci es. Theex actpr ocedur esusedwi l lv ar ybycl i ent ,dependi ngont henat ur eof t hebusi ness ,audi tr i sksandt heaudi tasser t i onst hatt heaudi t or swantt o pr ov e.

How t odesi gnt heaudi tpr ocedur e? Audi tpr oc edur enor mal l ydes i gnbyaudi t or sbasedont hechar act er i s t i cof t ar gett r ansact i onsorev entr i skst hatas soci at eandt heappr oac ht hat audi t orr espondt ot hos er i sks . Ri skassessmentcont r i but ess i gni ficant l yt oaudi t or st odesi gnt her i ght audi tpr ocedur es. Ri ghtaudi tpr ocedur esdonotonl yhel pt heaudi t ort oper f or mt hei rwor k mor eeffect i v el ybutal socont r i but et ot heaudi t ori nmi ni mi zi ngaudi tr i sks ( det ect i onr i sk ) . Whendesi gni ngt heaudi tpr ocedur e,t heaudi t ormustmak esur et hatal lof t hatpr ocedur econt ai nandaddr esst hr eei mpor t antt hi ngs . 

Theas ser t i ont hataudi t orwantt oconfir m



Pr ocedur et ot es tt hatasser t i on



Reas ont oper f or mt hepr ocedur e

Af t erper f or mi ngar i skas sessment ,t heaudi t orwi l l bei dent i fiedt hatr i sk s t hatt heyt hi nkmi ghthappent ofinanci al st at ement s . Forex ampl e,t heaudi t ormi ghtt hi ngst hei nv ent or i est hatr epor t i ngi nt he financi als t at ementmi ghtnotex i st .I nt hi scase,exi s t enc ei st heasser t i on t hatt heaudi t orwant st ot es t .

Ther ef or e,i nv ent or i esobser v at i oni st hepr ocedur et hatshoul dbei ncl uded i nt hei nv ent or i es ’audi tpr ocedur e. Thewayhowt oper f or m,t henumberofi nv ent or i est obeobser v edneeds t obes t at edcl ear l yt omak esur et hatt heaudi t ori nchar geoft hi sc y cl e coul dunder st and. Howev er ,t her ear esev er algener alcl assi fi cat i onsofaudi tpr ocedur es :

Cont r ol soverI nt er nalExpense Asf arasi nt er nalcont r ol sar econcer ned,i tcanbes eent hatcompani es hav emanyt ypesofi nt er nalcont r ol sr el at edt oex penses .Someoft he i nv oi cesmayr equi r ecer t ai nl ev el sofsi gnat ur es ,andot her smayr equi r ea wr i t t encont r act . Oneoft hefir s tst epsi nanaudi ti st oev al uat epai dex pensesagai nsthow cl osel yt heyf ol l owt hei nt er nalcont r ol s .Thi si sbasi cal l yt oensur et hatt he ex penseshav eact ual l yoccur r edi nr eal i t y .

Reasonabl enessofExpensesCheck Thi si st oensur et hatt heex pensest hathav ebeendecl ar edcanbe cons i der edor di nar y . Forex ampl e,ani nv oi ceof$100f orasmal lboxofs t apl erpi nswoul dnot beconsi der edr eas onabl eandwi l ll i k el yr ai sear edflag.Ther ef or e,i ti san

audi tpr ocedur et oensur et hatonl yex pensest hatar eneces sar yar e i ncur r ed. Howev er ,asf arast hi spar t i cul arexpensei sconc er ned,i tcanbeseent hat t her eas onabi l i t ymeasur eof t endependsont henat ur eoft hebusi nessand ev enoft hedepar t ment .

Ti mel yExpensePr ocessi ng Ti mel i nessoft het r ans act i onsi sal s oanaddi t i onalpr ocedur et hatmustbe account edf or .Thi si nv ol v eschecki ngf ort heexpensest oens ur et hatt hey hav ebeeni nc ur r edi nt heexi st i ngy earornot .

I nt hecas eofawi det i megapmak esi thar derf orcompani est omak esur e t heex pensesar el egi t i mat eandr easonabl e.Themai naudi t i ngpr ocedur e i nt hi sr egar di st het i mef act or ,andt her el ev anty eari ncont ex t .

Accur acyandDocument at i on Thi saudi tpr ocedur ei smai nl yaboutamount sandot herdat ar el at i ngt o t r ansact i onsandev ent shav ebeenr ecor dedatt hecor r ectamount s .Thi s meanst hatt heamountappear i ngi nt hes our cedocument si st r ueandr eal . Ther el ev antaudi tpr ocedur ei nt hi sr egar di saboutaudi t or sr andoml y sel ect i ngi nv oi cesandaski ngt oseeal l t heor i gi nalpaper wor k .Thi smay al soi ncl udecont r act si ft heyexi s t ,i nv oi cesandsi gnat ur es .

VendorLegi t i macyVer i ficat i on

Afinalchec ki st oens ur et hatal lv endor sex i standar er eal busi nesses. Oneoft heway sf r audul entt r ansact i onsoccuri sf oranempl oy eet osetup anonexi st entv endorandsubmi tmadeupbi l l s . Thi si sal s oani ncr easi ngl yi mpor t antf act orbecauseal otofexpenses mi ghtbeov er s t at edi nor dert or educet hepr ofit sf orpur posesoft ax . Ther ef or e,i ti sanaudi tpr ocedur et oens ur et hatt hes easpect shav ebeen pr oper l ycov er ed.

Cl assi ficat i onTest i ng Anot herAudi tPr ocedur er egar di ngoper at i ngex pens esi st oensur et he cor r ectc l assi ficat i onoft heoper at i ngexpenses .Audi tpr ocedur esar eused t odec i dewhet hert r ansact i onswer ecl as si fiedcor r ect l yi nt heaccount i ng r ecor ds . Cl assi ficat i oni sar eal l yi mpor t antpar t ,especi al l ywheni tcomest o oper at i ngex pensesbecaus eoft hef actt hatal otofor gani z at i onsendup cl assi f yi ngoper at i ngex pensesascapi t alex pendi t ur esandvi cev er sa. Ther ef or e,t her ei saneedt oensur et hatnosuchact i vi t yi scar r i edout whi chmi ghti mpactt heov er al l cr edi bi l i t yandr el i abi l i t yoft hefinanci al s t at ementi t sel f .

Compl et enessTest i ng Audi tpr oc edur escant es tt oseei fanyt r ansact i onsar emi ssi ngf r om t he account i ngr ecor ds. Forex ampl e,t hecl i ent ’ sbankst at ement scoul dbeper us edt oseei fany payment st osuppl i er swer enotr ecor dedi nt hebook s ,ori fcashr ec ei pt s f r om cust omer swer enotr ecor ded. Themai ni deabehi ndt hi si st oensur et hatal lt heexpenseshav ebeen compl et el yr ecor ded,andnotadj us t edt oi mpactt hefinanci al st at ement si n anymanner .

Concl usi on Theaudi tpr ocedur est hathav ebeenment i onedear l i erar equi t esubj ect i v e f r om cl i entt ocl i ent .Thi si spr i mar i l ybec auseoft her easont hatwi t h di ffer entnat ur eofbus i nesses,di ffer entoper at i ngex pens esar ei ncur r ed.

Ther ef or e,i tmak essenset oasses st heov er al l si t uat i oncont i ngentont he l i neofbusi nessoft hecl i enthi ms el f .

Fur t her mor e,i tshoul dal sobet ak eni nt oaccountt hatt hemai naudi t pr ocedur es( accur acy ,r easonabl e,et c. )wi l ls t ayconsi st entr egar dl es sof t henat ur eoft hebus i nes s.

Howev er ,t hi sdoesnotmeant hatt heov er al ll i sti sexhaust i v e. I nf act ,t her ear esev er alot herf act or st hatneedt obei ncor por at edaspar t oft heaudi tpr ocedur esv ar yi ngf r om s i t uat i ont os i t uat i on....