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!
One response
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:
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.
Sampling: Select a representative sample of professional expenses. The sample can be random or based on higher-value transactions to focus on material items.
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.
Evidence of Services Rendered: Confirm that the services were actually rendered. This could involve reviewing contracts, project deliverables, or reports that substantiate the expense.
Comparison with Budget or Estimates: Compare the actual expenses against budgeted amounts or past expenses to identify any unusual variances. Investigate any significant discrepancies.
Approval Process: Review the approval process for expenses. Ensure that all expenses have the necessary approvals from designated personnel as per the internal controls.
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.
Payment Verification: Confirm that payments for the expenses were made as per the agreed terms. This could include bank statements or payment confirmations.
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.
Test for Reasonableness: Assess if the expenses are reasonable for the services performed. Compare with industry benchmarks or similar expenses in prior periods.
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!