Question

What is meant by the analysis of expense accounts? Explain how expense account analysis relates to the tests of controls and substantive tests of transactions that the auditor has already completed for the acquisition and payment cycle.?

Answer 1

Solution:-

Operating expenses are expenses other than your costs of goods sold, direct expenses, other income or other expenses. They are considered the continuous financial obligations incurred in the daily operation of the business. Your operating expense control can make a huge difference in your gross profit margin.

The differences are that tests of controls and substantive tests of transactions are selected from all of the acquisitions and cash disbursements journals for the entire period whereas transactions examined for expense analysis are limited to the account being analyzed.

Potentially the same objectives are accomplished in tests of controls and substantive tests of transactions as for expense account analysis.