Good Way to test Professional Expenses (Opex)

One response

1. Testing professional expenses, particularly operating expenses (Opex), requires a structured approach to ensure that all transactions are accurate, legitimate, and properly accounted for. Here are some procedures you can consider implementing as part of your testing:

   1. Document Review:
   2. Gather and review contracts, agreements, and engagement letters with third-party professionals to confirm the nature of the services provided.

   3. Ensure that these documents clearly outline the terms, including the scope of services and payment terms.

   4. Invoice Verification:

   5. Obtain and review invoices related to professional services. Check for accuracy in:
      • The billed amounts.
      • The date of service.
      • The description of services rendered.

   6. Match invoices to services provided and verify they are recorded in the appropriate Accounting period.

   7. Comparison to Budget:

   8. Compare actual professional expenses against budgeted amounts to identify any variances.

   9. Investigate significant variances and understand the reasons behind them.

   10. Approval Process:

   11. Assess the approval process for expenses. Verify that all expenses have been approved by the appropriate personnel before payment.

   12. Review a sample of expense claims to confirm that they have been duly authorized.

   13. Reconciliation with Payment Records:

   14. Cross-check expenses recorded in the general ledger with the payment records (bank statements, online payment confirmations).

   15. Ensure that the payments made correspond with the recognized expenses.

   16. Confirm Third-Party Services:

   17. If feasible, obtain confirmation from the third-party professionals regarding the services provided and amounts billed. This can be done through direct communication or written confirmations.

   18. Sample Testing:

   19. Select a sample of professional expenses and perform detailed testing. This could involve reviewing:

       • Supporting documentation (receipts, contracts).
       • The calculation of fees, ensuring they comply with agreed terms.
       • Any changes in rates or fees over time.

   20. Compliance Check:

   21. Ensure that all expenses comply with internal policies and external regulations. This is especially important for tax purposes and internal cost controls.

   22. Analysis of Trends:

   23. Analyze expense trends over time to identify any unusual spikes or trends that may warrant further investigation.

   24. Follow-Up on Outstanding Items:

   25. Review any outstanding invoices or unprocessed expenses to ensure they are resolved in a timely manner.

   Implementing these procedures will help maintain a robust control environment over professional expenses and ensure that Opex is accurately reflected in the financial statements. Don’t forget to document the procedures and findings for future reference and Audit trails.

   Log in to Reply