[Checklist] for Verification of Items of Expenses to be Followed by the Auditor

As part of their duties, auditors are responsible for verifying the expenses of an entity to ensure that they are valid and accurately recorded. To do this, auditors use various procedures such as examining records and performing analytical procedures. However, the extent and timing of these procedures depend on the auditor’s professional judgment, which takes into account the effectiveness of internal controls. It’s important for the auditor to ensure that the entity recognizes expenses based on recognized accounting principles.

(a) Examination of Records: One of the primary techniques used by auditors to verify expenses is the examination of records and documents. Since most transactions are supported by documentary evidence, the auditor needs to examine a large number of documents during the audit process.

(b) Analytical Procedures: To verify expenses, auditors should also perform analytical procedures, which involve analysing significant ratios and trends. This includes investigating fluctuations and relationships that don’t match other relevant information or deviate from predicted amounts.

To ensure that no significant expenses are overlooked, auditors often use a checklist of items to verify. This story discusses a checklist for auditors to verify items of expenses.

I. Whether the auditor has examined the cost of goods (COGS), stores and materials consumed during the year involving the examination of purchases of goods and materials made during the year as well as of purchase returns and of opening and closing inventories

II. Whether the auditor has examined the selected documents pertaining a few days immediately before the year-end and verified that the related purchase invoices have been recorded as purchases of the current year

III. Whether the auditor has examined the entries in the payroll/wage sheets with reference to relevant records, e.g., employee’s records maintained by the personnel department showing details of payment such as basic pay, allowances, annual increments, leaves availed, etc.

IV. Whether the auditor has examined whether the bonus liability is provided for in accordance with the Payment of Bonus Act, 1965, and/or agreement with the employees or award of competent authority

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