Good Way to test Professional Expenses (Opex)

Effective Methods for Testing Professional Expenses (Opex)

I’m looking for procedures to conduct a detailed test of expenses that the entity has incurred and paid to third-party or internal professionals, categorized as operating expenses. Do you have any suggestions?

Thank you in advance for your help!

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  1. Testing professional expenses (Opex) can be a crucial aspect of auditing and ensuring that expenses are valid, accurately recorded, and in compliance with established policies. Here are some procedures you can consider for testing these expenses:

    1. Review Expense Policies: Begin by reviewing the entity’s expense recognition policies. Ensure there are clear guidelines on what qualifies as a professional expense and that they are being followed.

    2. Sampling: Select a representative sample of professional expenses. The sample can be random or based on higher-value transactions to focus on material items.

    3. Invoice Verification: For each selected transaction, obtain the corresponding invoices and verify that they are from legitimate third-party professionals or recognized internal departments. Check that the invoices include sufficient details, such as the scope of services provided, date, and payment terms.

    4. Evidence of Services Rendered: Confirm that the services were actually rendered. This could involve reviewing contracts, project deliverables, or reports that substantiate the expense.

    5. Comparison with Budget or Estimates: Compare the actual expenses against budgeted amounts or past expenses to identify any unusual variances. Investigate any significant discrepancies.

    6. Approval Process: Review the approval process for expenses. Ensure that all expenses have the necessary approvals from designated personnel as per the internal controls.

    7. Cross-Check with Payroll: For internal professionals, cross-check the expenses claimed against payroll records to verify that the expenses align with the services being rendered.

    8. Payment Verification: Confirm that payments for the expenses were made as per the agreed terms. This could include bank statements or payment confirmations.

    9. Interviews and Inquiries: Consider conducting interviews with relevant staff in the finance department or project managers to gain insights into the expenses and any unusual transactions.

    10. Test for Reasonableness: Assess if the expenses are reasonable for the services performed. Compare with industry benchmarks or similar expenses in prior periods.

    11. Document Findings: Throughout your testing process, document your findings, any discrepancies, and follow-up actions taken. This will be essential for transparency and for any subsequent Audit reviews.

    By employing a combination of these procedures, you will be able to thoroughly test professional expenses and gain assurance over their accuracy and legitimacy. Good luck with your testing!

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