The term audit expenses may refer to two areas. The first includes the examination of expenditures within a company performed by auditors during the auditing process. On the other hand, it may also represent the costs associated with the auditing process. The former area relates to auditing, while the latter applies to accounting. Therefore, it is crucial to define both.
What are Audit Expenses in Auditing?
Auditors test a subject matter during the audit process. Usually, this subject matter is a company’s financial statements. These include two areas, i.e., account balances and a class of transactions and events. Audit expenses in auditing refer to the audit procedures auditors use to examine a client’s expenditures. This process relates to the class of transactions and events category in auditing.
Audit expenses in auditing involve examining all expenditures reported in the income statement. It can also include using other auditing techniques, such as audit sampling, the test of details, etc. Primarily, auditors test several audit assertions associated with expenses. These assertions relate to the class of transactions and events and cover the income statement.
What are the assertions tested for Audit Expenses in Auditing?
Auditors examine the following assertions associated with audit expenses in auditing.
Accuracy – It entails checking the accuracy of the figures reported in the financial statements as expenses.
Classification – It involves ensuring expenses have been classified under the correct heading in the income statement.
Completeness – It involves checking that all expenses incurred have been recorded and reported in the financial statements.
Cut-off – It involves ensuring expenses have been recorded and reported in the period to which they relate.
Occurrence – It entails checking whether the expenses recorded and reported in the income statement have actually occurred.
Presentation – It involves ensuring the proper presentation of expenses and their related disclosures in the income statement.
What are Audit Expenses in Accounting?
Audit expenses in accounting consider the term differently. Most companies conduct internal and external audits regularly. Usually, these audits come with some costs. It primarily involves the fee paid to auditors. However, it may include other items, such as traveling and food expenses, and other reimbursements.
Like other expenses, companies must also record and report audit expenses in the income statement. Some jurisdictions may require companies to include a break-up of the expenditures associated with the auditing process. In accounting, the term audit expenses refer to expenses reported in the income statement associated with the auditing process.
How to record Audit Expenses in Accounting?
Recording audit expenses in accounting involves two steps. The first occurs when the company incurs those expenses. Usually, it is when auditors complete their work during the audit process. At this point, the company must record the expenses even though the payment to auditors has not occurred. It can use the following journal entry to do so.
| Dr | Audit expenses |
| Cr | Audit fee payable |
When the company settles the dues associated with audit expenses, it must record it as follows.
| Dr | Audit fee payable |
| Cr | Cash or bank |
Conclusion
The term audit expenses cover two areas. The first involves these expenses in the context of auditing. In that context, it refers to the audit procedures applied by auditors to examine expenses reported in the income statement. It also includes the related assertions for that purpose. In accounting, audit expenses refer to the costs incurred by companies to conduct audits.
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