Learn how auditors should properly check entertainment expenses to ensure accuracy and compliance. Follow these key steps.In the world of auditing, one of the key areas that auditors need to pay close attention to is entertainment expenses. Entertainment expenses can be a tricky area to navigate, as they often involve subjective judgments and can be easily manipulated.
How Auditor Should Check The ENTERTAINMENT EXPENSES
AGREEMENT WITH HOTELS
The auditor should check the agreement which is formed with hotels. This agreement must contain the * * period, amount and limit of entertainment.
RECEIPTS
If entertainment expenses are not concerned with any particular party, the auditor should check the receipts received from that party.
DAILY EXPENSES
The auditor should also check the day to day expenses of tea and coffee for customers and employees.
Auditors have a critical role in verifying the accuracy and appropriateness of entertainment expenses reported by a company. Here are the key steps and considerations for auditors checking entertainment expenses:
Review Company Policies
- Understand Policies: Begin by understanding the company’s policies regarding entertainment expenses. This includes limits, allowable expenses, and the process for submitting and approving these expenses.
- Compliance Check: Ensure that the expenses claimed are in compliance with both company policy and applicable tax laws.
Examine Supporting Documentation
- Receipts and Invoices: Check for original receipts, invoices, or other forms of proof that substantiate the expenses.
- Detail Review: Look for detailed information on the nature of the entertainment, including the purpose of the expense, date, location, and individuals involved.
Verify Approval Process
- Authorized Approvals: Confirm that the expenses have been approved by authorized personnel within the company.
- Check for Exceptions: Identify any expenses that were approved outside the standard procedures and verify their justifications.
Analyze Expense Patterns
- Trend Analysis: Look for trends in the expenses, such as seasonal spikes or significant deviations from normal patterns.
- Comparison: Compare current expenses with those of previous periods or with budgetary allocations to identify any irregularities.
Interview Personnel
- Discuss with Employees: Speak with employees who claim high or unusual entertainment expenses to understand the context and necessity of such expenses.
- Management Interviews: Discuss the enforcement of expense policies and any exceptions with management.
Check for Tax Compliance
- Tax Deductibility: Verify that the expenses meet the criteria for tax deductibility under the relevant tax jurisdiction.
- Proper Documentation: Ensure that all required documentation is maintained for tax purposes, particularly if audited by tax authorities.
7. Use of Analytical Procedures
- Ratio Analysis: Use ratios (like entertainment expenses to sales) to see if there are any outlying figures.
- Benchmarking: Compare the company’s expenses with industry norms to gauge typical spending levels.
8. Report Findings
- Documentation: Prepare a detailed report documenting all findings, including any discrepancies or violations of policy.
- Recommendations: Suggest improvements to policies or controls if necessary.
9. Follow-Up
- Action Plan: Ensure that any issues identified are addressed and follow up to see that appropriate changes are made.
- Continuous Monitoring: Recommend that the company periodically reviews entertainment expenses as part of its internal audit activities.
Through these steps, auditors can help ensure that entertainment expenses are legitimate, necessary for business operations, and in compliance with both company policies and tax laws.
Conclusion
In conclusion, auditing entertainment expenses requires attention to detail, thorough documentation review, and adherence to company policies and regulations. By following the key steps outlined above and implementing best practices for auditing entertainment expenses, auditors can help ensure accuracy and compliance in this critical area. Remember, a comprehensive audit of entertainment expenses can help safeguard the financial integrity of a company and detect any potential issues before they escalate.