A Guide to Expense Audit Procedures

Expenses auditing can be daunting for businesses. However, knowing exactly what the procedures entail can help make it seem a little less intimidating.

In this article, we’ll guide you through the audit procedures for expenses, from its objectives to precisely what it involves.

What is an expenses audit?

An audit of expenses is required in order to evaluate whether company expenses were necessary and in accordance with a business’ policies. The auditor carrying out the expense audit procedures will gather relevant audit evidence to reach a decision on this.

The goal of the expenses audit is to check that expenses are always reasonable, that they are accurately recorded and carried out efficiently. Accuracy is particularly important as understating or overstating expenses will affect profit statements.

What audit procedures for expenses are there?

A number of procedures are involved in expense auditing. These include the following:

Occurrence checks

Auditors verify whether all expenses have been recorded as and when they occurred. This is because when they are not recorded in real-time, there is a higher risk of under reporting or errors.  

Completeness checks

This involves ensuring that the expense balance details all expense transactions over a given period. This is carried out in order to check that there are no missing transactions in the accounting documents.

Classification

Auditors are also required to verify that all expense transactions are correctly classified according to relevant accounting standards.

Cut off assertion

Cut off assertion is an audit procedure whereby auditors check that expenses are recorded in the correct accounting period.

Accuracy checks

As the name suggests, accuracy checks involve verifying that expenses are correctly noted with the right amounts.

What challenges arise during expenses audits?

Expense audits can be a stressful task for financial teams. This is usually due to the following challenges:

Manual receipt processes

The most monotonous task for businesses still using manual expense management procedures is the reviewing or paper receipts. This is because they have to be examined one by one to check that they correspond to the reports. This can be a time-consuming task at the best of times, but if there are incomplete or erroneous receipts, it can get even trickier.

Complicated expense policies

Some businesses will have a more complex expense policy than others. The more convoluted it is, the more difficult it is for employees to follow accurately. This can potentially lead to errors and non-compliance. Inevitably, this adds to the workload of auditors who have to process and check employee expenses.

Expense reports submitted in bulk

A complication which frequently occurs is employees allowing expense reports to accumulate and then submitting them in the bulk at infrequent periods. This can mean finance teams and auditors are lumped with large quantities of reports to check through at once.

Volume increases

Due to staff and company growth, manual expense audits can be difficult to scale. Over the course of a year, a company may hire a number of new staff in different departments. This means that the financial team can be on the small side proportional to the rest of the company. This can lead to a very overworked financial team due to the sheer volume of expense reports they have to get through.

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