Effective Methods for Testing Professional Expenses (Opex)
I am seeking procedures to conduct a detailed test of expenses incurred and paid by our entity to both external and internal professionals that are classified as operating expenses. Any suggestions or best practices would be greatly appreciated!
Thank you in advance.
One response
Testing professional expenses (operating expenses) involves a thorough examination of the transactions to ensure that they are valid, accurately recorded, and reflect the services received. Here are some procedures you could consider implementing as part of your test of details:
Confirm that the invoices are duly approved and reflect the agreed-upon rates.
Expense Reconciliation:
Perform a reconciliation of the professional expense account to identify any discrepancies.
Service Agreement Review:
Review contracts or service agreements with professionals to verify terms and rates. Check if expenses align with contractual obligations.
Payment Analysis:
Trace payments made to professionals from bank statements or payment records back to the invoices to ensure only valid expenses have been recorded and paid.
Sampling and Observation:
If possible, observe or inquire from internal teams regarding services received to validate the necessity of the expense.
Internal Control Assessment:
Evaluate the internal controls around the approval and payment processes for professional expenses. Consider segregation of duties, authorization protocols, and documentation requirements.
Confirmation with Service Providers:
Where feasible, obtain direct confirmations from professionals regarding the services rendered and amounts billed to ensure validity and completeness.
Related Party Transactions:
If applicable, identify any related party transactions and assess whether the terms are consistent with those that would be agreed upon in an arm’s-length transaction.
Trends and Reasonableness Check:
Analyze expenses over time to identify any unusual trends or spikes. Investigate discrepancies that stand out compared to historical data or industry benchmarks.
Documentation and Record Keeping:
By implementing these procedures, you can strengthen the assurance around the validity of operating expenses and identify any potential issues or discrepancies. Good luck with your testing!