This post intend to share with our Accouting & Auditing blogs readers on a number of tips while performing the review of audit client's legal expense account, as follows:
a) Review the invoice & billing details sent by the audit client's lawyer to identify any law suits / legal cases that's against the audit client [ note: disclosure is required in the financial statement, if the exposure is material]
b) To investigate further if there's vague and inadequate descriptions on the billings from the lawyers.
c) Review the engagement letter / contract entereted into by audit client with the lawyers to find out how detailed the firms’ fee bills should be.
d) From internal control perspective, audit client should have adequate and consistent policy for reviewing legal fee bills once they came in. [ i.e. determination of the verifier and reviewers of the legal fee bills, etc]
e) Please obtain confirmation from audit client's lawyer on the on-going legal cases/ law suits to identify if there's any material exposure.
Showing posts with label Auditing- Expenditure. Show all posts
Showing posts with label Auditing- Expenditure. Show all posts
Sunday, October 2, 2011
Saturday, March 19, 2011
#102- Auditing operating cost- understanding cost drivers
Auditing operating costs is always not an easy task. A good audit procedure requires auditor to develp a thorough understanding of the nature of the cost,determination of fixed / variable costs, understand the cost drivers of the costs (especially for variable costs),understand the linkage between the costs and the revenues.
Significant assertion of auditing an operating cost is to ensure that the cost recorded is complete (i.e. completeness).
First of all, we need to understand the nature of the costs (i.e. what type of costs, when was the costs incurred, is the individual amount incurred significant, etc). After develop the understanding of the nature of the costs, we need to understand whether the costs is a fixed costs, or variable costs.
Then, we need to understand the cost driver of the costs. This procedure is especially important for variable costs component. Auditor need to understand what are the factors that drive the cost (for instance, transportation cost could be significant to a trading house). The cost driver for transportation cost is the level of business activities / number of deliveries completed
Auditor can analyze the company's record on number of deliverties completed for the year, and compare our expectation to the cost variation. To illustrate, while number of deliveries go up, we will expect total transportation cost to increase. A good understanding of the cost drivers allow the auditor to have complete understanding of the costs/ and develop a good audit approach to analyze the cost variation.
Significant assertion of auditing an operating cost is to ensure that the cost recorded is complete (i.e. completeness).
First of all, we need to understand the nature of the costs (i.e. what type of costs, when was the costs incurred, is the individual amount incurred significant, etc). After develop the understanding of the nature of the costs, we need to understand whether the costs is a fixed costs, or variable costs.
Then, we need to understand the cost driver of the costs. This procedure is especially important for variable costs component. Auditor need to understand what are the factors that drive the cost (for instance, transportation cost could be significant to a trading house). The cost driver for transportation cost is the level of business activities / number of deliveries completed
Auditor can analyze the company's record on number of deliverties completed for the year, and compare our expectation to the cost variation. To illustrate, while number of deliveries go up, we will expect total transportation cost to increase. A good understanding of the cost drivers allow the auditor to have complete understanding of the costs/ and develop a good audit approach to analyze the cost variation.
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