Audit procedures for travel expenses are crucial to ensure compliance with internal policies, as well as regulations and legal requirements. These procedures help to prevent financial irregularities, reduce the risk of fraud, and ensure accurate financial reporting.
This article outlines the best practices for conducting audit procedures for travel expenses, covering accounting under IFRS, audit risks, audit assertions, walkthrough testing, test of control, and substantive audit procedures.
Accounting Under IFRS
Under IFRS, companies are required to recognize travel expenses as an expense in the income statement when they are incurred. The measurement of travel expenses should be based on the fair value of the services received, and the disclosure of travel expenses should be transparent and detailed. Companies should disclose the nature of travel expenses, the destination, and the purpose of the trip.
- Fraudulent travel expense claims by employees.
- Unapproved or unauthorized travel expenses.
- Overstated or inflated travel expenses.
- Inaccurate recording of travel expenses.
- Improper classification of travel expenses.
- Lack of adequate documentation to support travel expenses.
- Failure to comply with company travel policies.
- Non-compliance with applicable regulations and legal requirements.
- Errors in travel expense calculations.
- Lack of segregation of duties in the travel expense process.
- Existence: The travel expenses exist, and the transactions recorded are valid.
- Completeness: All travel expenses have been recorded, and there are no omissions or unrecorded transactions.
- Accuracy: The travel expenses are accurately recorded in the financial statements.
- Valuation: The travel expenses are recorded at the correct value.
- Rights and obligations: The company has the right to incur the travel expenses, and the obligations to pay for them are properly recorded.
- Presentation and disclosure: The travel expenses are properly presented and disclosed in the financial statements.
- Obtain a list of travel expenses for the period and trace them to the general ledger to ensure completeness.
- Select a sample of travel expenses and trace them back to supporting documentation to ensure accuracy and validity.
- Follow the travel expense approval process to ensure that it is being followed as per the company’s policies and procedures.
- Check the segregation of duties between the individuals who approve, record, and reconcile travel expenses.
- Verify that the travel expenses are properly authorized and supported with the necessary documentation, such as travel itineraries, receipts, and invoices.
- Evaluate the internal controls in place to prevent duplicate or erroneous expense claims, such as expense limits and policy adherence.
- Verify the accuracy of the travel expense calculations, including the foreign exchange rate conversions if applicable.
- Analyze the travel expenses for unusual patterns or trends, such as excessive amounts or repeated trips.
- Review the expense reports for proper classification between reimbursable and non-reimbursable expenses.
- Confirm that the expenses incurred are necessary and appropriate in the context of the business purpose of the travel.
Test of Control:
- Review the company’s travel expense policies and procedures to ensure that they are designed effectively.
- Evaluate the segregation of duties between individuals who approve, record, and reconcile travel expenses to ensure that there is no conflict of interest.
- Inspect evidence of training and education provided to employees on travel expense policies and procedures to ensure that they are aware of their responsibilities.
- Perform a surprise review of expenses to ensure that the controls are being followed consistently.
- Observe the process of travel expense approval and payment to ensure that it is being followed correctly.
- Confirm with the travel department or responsible personnel that they have the authority to approve travel expenses and that they are aware of the company’s policies and procedures.
- Inspect evidence of compliance with expense limits and other controls to ensure that they are being followed correctly.
- Evaluate the use of company credit cards and their controls to ensure that they are being used appropriately.
- Review and reconcile the travel expenses periodically to ensure that they are being recorded and reported accurately.
- Perform a trend analysis of the travel expenses to identify any unusual patterns or discrepancies.
Substantive Audit Procedures:
- Verify that the travel expenses incurred are properly recorded and classified in the correct accounts.
- Select a sample of travel expenses and verify that they have been approved and supported by the necessary documentation.
- Confirm that the expenses are not overstated or understated and that they are recorded at the appropriate amounts.
- Verify the accuracy of the foreign exchange rate conversions if applicable.
- Confirm that the expenses have been properly allocated between various cost centers and projects if applicable.
- Review the expense reports for any unallowable expenses or expenses that are not in compliance with the company’s policies and procedures.
- Inspect the travel expense reports for any unexplained or missing expenses and follow up with the responsible personnel to resolve them.
- Compare the expenses incurred to the budget or historical data to identify any significant variances.
- Analyze the expense data for any unusual patterns or trends, such as sudden increases or decreases in expense amounts.
- Confirm that the expenses incurred are reasonable and necessary for the business purpose of the travel.