Definition of Operating Expenses

Operating expenses are those that allow the daily activity of a company to be
maintained, which are not usually directly linked to production. Both the term
operating expenses and operating expenses are often used.

These costs are incurred in the normal development of the economic entity,
according to the purpose for which it was founded and record the expenses
incurred during a year in relation to the development approach of the financial,
legal, commercial and executive activity. direction of administrative
management.

The concept of operating expenses is distributed into financial expenses ,

administrative expenses, general expenses and representation expenses. This
term includes salaries, sales commissions, travel, fees, transportation, office
services, worker benefits, issuance of checks, interest payments, leases and
rentals, insurance, taxes , repairs and supplies.

Example of operational expenses

Another term by which operating or operational expenses are known is indirect
expenses. This is because investments are not contemplated nor a short-term
benefit expected. These types of costs are focused on guaranteeing the operation
and subsistence of the company.

To explain this term a little better, you can use an example of operating
expenses . The purchase of machines for production represents an investment by
companies with the purpose of achieving a series of benefits in the future.
However, the expenses incurred for the purchase of elements that guarantee the
proper functioning or maintenance of said machinery are included in the chapter
of operating expenses. This is the case, therefore, of a photocopier and the sheets
of paper that are used to guarantee its correct operation.

Operating expenses are those that ensure the proper functioning of the business
and are included in the budgets for the year. Know all the information about the
company's operating costs and learn how to calculate them to properly manage
your company.

Transcription of Audit Procedures for Income, Costs and Expenses

Audit Procedures Income Audit Procedures Costs and Expenses Conclusions Costs
Concepts Acquisition Cost. Disposal Cost Completion Cost It is the application to results of
the cost corresponding to the items or services sold. (According to NIF C-4) Cost of sales
Represents the amount of the different resources (MP, MO and GI) that are involved in the
acquisition or production of the goods or services sold. (According to Audit Guides)
Purchase Cost Production Cost General Objectives a) Check its physical existence g) Check
its adequate presentation and disclosure in the financial statements. f) Verify that the cost of
sales corresponds to transactions and events actually carried out during the period and that
it has been determined in a reasonable and consistent manner. e) Make sure that there is
consistency in the application of the valuation methods d) Check their adequate valuation,
taking into consideration that they do not exceed their realizable value c) Determine the
existence of liens, check their adequate valuation b) Verify that they are property of the
company Importance The sales price is made up of the cost (Cost of sales) of the product
plus the percentage of profit desired by the seller. From here you can see the importance of
the cost of sales, since the percentage of profit largely depends on it, since you cannot
always have absolute control over the sales price. Audit Risk Compliance Tests Substantive
Tests Audit Procedure They focus on corroborating the operation of key internal controls,
like any audit procedure, they must be designed based on the particular circumstances of
each entity. Ownership Verify that the inventories presented belong to the company by
inspecting documentation. o Evaluation of the planning of physical inventory taking.
o Observation of physical inventory
o Review of the cut of operations
o Checking of stocks held by third parties
o Checking third party stocks held by the company
o Observation and physical testing of rotating inventories
o Verification of the sum and costing of physical inventories
o Procedures applicable in the event that the initial and/or final physical inventory could
not be observed Existence and integrity Valuation o Valuation tests of the inventory and the
cost of sales
o Review of goods in transit o Verification of advances to suppliers
o Verification of estimates for value losses in inventories  Check valuation systems and
methods  Observation verifying the adequate segregation of functions, assignment of
responsibilities, existence of forms, records and files.  Selective review of purchases 
Review of the adequate determination of unit production costs  Verification of internal
movements and other warehouses.  Testing of shipments, verifying the cost of sales and
the respective billing. Expenses The decrease in assets or increase in liabilities during an
accounting period, with the intention of generating income and with an unfavorable impact
on the net profit or loss or, where applicable, on the net change in accounting equity and
consequently, in your earned capital or accounting equity
(According to NIF A-5 “Basic elements of financial statements”) Objectives Verify that
there are no capitalizable assets recorded as expenses. Verify that the expenses represent
transactions actually carried out and for the entity's own purposes. Verify that all expenses
that correspond to the reviewed period are recorded. Verify that the expenses are properly
accounted for and presented, in accordance with the NIF and are consistent with those of
the previous year. Materiality and audit risk To establish the scope of the audit tests in the
expense item, the analysis of the influencing factors or conditions must be considered, as
well as the risk that the controls do not detect it, or that the auditor does not discover them. .
The nature and characteristics of the expenses.
Absence or inadequate capitalization policies.
Lack of controls to recognize and record expenses in a timely and adequate manner.
Extraordinary charges and credits.
Lack or inadequate procedures for the review and authorization of disbursements.
Unreliable auxiliary records. Planning Analytical review Compliance tests Substantive tests
In planning, the auditor must obtain information on the nature of expenses and
capitalization policies, rules for their recognition and presentation in the financial
statements. In order to evaluate the materiality of expenses in relation to the financial
statements and identify significant changes or unusual transactions, the auditor will apply:
Analysis of financial ratios, in order to identify variations and judge their reasonableness
Comparison of figures from the different lines of the period against budgets and against the
figures of the previous year. Analysis of the explanation of important variations Expenses
authorized by responsible officials.  There are appropriate accounting records for the
control, classification and information of expenses by areas of responsibility.  There is a
segregation of functions for authorization, payment and registration.  A budget control
has been established for these expenditures. Verify that the balances of the auxiliary
expenses subaccounts match the general ledger. General review of expense assistants to
detect and investigate unusual items. Critical examination of the documents that support the
expenses, to verify that the goods or services have been effectively received and that they
are derived from normal and proper transactions. By the end of the audit, the following
aspects should have been clear and confirmed regarding the income, costs and expenses
carried out by the entity during the periods subject to examination.
For this, the auditor should have already carried out the appropriate audit procedures and
have reached the following conclusions Income Costs Expenses •It was proven that
operating expenses represent transactions actually carried out
•It was determined that all operating expenses for the year are included in the income
statement and that they do not include transactions from the immediately preceding and
following periods.
•It was confirmed that the operating expenses shown in the income statement come from
the normal operations of the business and that they are revealed in extraordinary, special or
non-recurring items, as well as important transactions with affiliated entities •It was proven
that it is resulting from transactions actually carried out.
•It was determined that all sales for the year as well as their cost are recorded and that
transactions corresponding to the immediately preceding and following periods are not
included.
•The appropriate presentation and disclosure in the financial statements was verified.
•It was verified that there is consistency in the methods used for its registration. •It was
proven that sales and their cost represent transactions actually carried out.
•It was determined that all sales for the year are recorded and that transactions
corresponding to the immediately preceding and following periods are not included.
•It was determined that the authenticity of the sales deductions for bonuses and returns.
•The debt presentation and disclosure of the financial statements was verified.
•It was verified that there is consistency in the methods used to record income. Income An
income is the increase in the assets or the decrease in the liabilities of an entity, during an
accounting period, with a favorable impact on the net profit or loss or, where applicable, on
the net change in accounting equity and, consequently, in earned capital or accounting
equity, respectively.
NIF A-5 BASIC ELEMENTS OF FINANCIAL STATEMENTS Objectives ° Check the
authenticity of income, as well as discounts and returns. ° Verify that all income is recorded
in the accounting, verifying that these correspond to transactions and events actually carried
out during the period, and that they have been determined in a reasonable and conscious
manner. ° Check the appropriate presentation and disclosure in financial studies.
Importance The objectives related to authorization, processing and classification of
transactions, physical safeguards and verification and evaluation must be met, including
those applicable to updating figures and controls related to Information Technology (IT).
Audit risk Presumption of which improper methods of amortization of the entity's
obligations and shares and of recognition of revenues, costs and expenses represent a risk
of fraud Considerations regarding the possibility of management violating established
controls AUDIT PROCEDURES Compliance testing Testing substantive h) Procedures for
recording estimates. a) Existence of authorization and documentation of credit sales, sales
prices and discounts and returns, considering aspects such as: b) Adequate segregation of
the functions of receiving customer orders, credit, shipping, billing, collection, returns and
accounting. c) Registration, in the corresponding period, of the invoice covering shipments
to customers and the credit notes that support the returns received. d) Control of returns. e)
Constant and effective surveillance of maturities and collections, mainly based on
information on the age of balances. f) Other income. g) Periodic reconciliation of the sum
of the auxiliaries against the balance of the corresponding general ledger account.
Verification of the “cut” of operating income, to ensure that the income was recorded in the
period to which it corresponds. Examining the documentation of the last operations of the
subject period and the first of the following period. -Shipment
-Billing Receiving returns Discounts Credit notes Comparison of actual and budgeted
figures
•Sales
•Returns
•Discounts
•Gross profit margins.
The auditor must simultaneously verify the correctness of the taxes that are determined
taking said income into account. -Verify the calculation of income from interest,
commissions, etc.