Apr 12, 2023
4 min read

Ensuring Compliance with Expense Audit Trail Requirements

Quick summary

Businesses must build and complete audit trails to minimise fraud, accounting errors, etc. The audit trail should also help the finance team check how accurate their transactions and accounting are and ensure they have the correct information for financial statements.

Table of Contents

    What is an audit trail in expense management?

    An audit trail is the sequence of events in the lifetime of a transaction that happens from its inception until payment. The audit trail gives a clear view and provides unique insight into the nature of each transaction to various stakeholders.

    Stakeholders, be they business leaders, finance teams, internal or external auditors, and tax inspectors, need to be able to follow business transactions to make better decisions (business leaders) or comply with regulations and professional standards (finance teams, auditors).

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    What are the compliance requirements of an Expenses Audit trail?

    Each business is subject to various Accounting and Tax regulations, and non-small businesses are subject to financial audits. A business, to avoid penalties, non-compliance with laws and regulations, and to receive a clean audit opinion, needs to be able to provide sufficient details behind each transaction – the so-called audit trail. Here are some of the requirements:

    • Businesses should not overstate or understate their expenses
    • Businesses should show their expenses in the correct and appropriate categories when preparing financial statements
    • Businesses should show their expenses in the correct and appropriate categories when filling in Income Tax Returns – deductible, non-deductible. And VATable vs. non-VATable etc
    • Businesses should be able to provide their auditors with sufficient and appropriate audit evidence so that their auditors can form their opinion on whether the financial statements give an accurate and fair view. (I.e., auditors should be able to trace back transactions from their inception until their payment and recording)
    • The business's auditors receive sufficient and appropriate audit evidence by verifying the completeness, accuracy, classification, occurrence, and period of recording of transactions
    • Certain laws and regulations require businesses to keep hard copy documents or electronic alternatives for all transactions for a period of time after a transaction has taken place

    How can an audit trail and expense management software achieve the compliance requirements above?

    Companies can adhere to compliance requirements more efficiently with a detailed audit trail. Using expense management software, businesses can create great audit trails for all expense transactions.

    With Payhawk’s solution, businesses can:

    • Issue corporate cards (credit or debit - credit cards UK and US only) and receive live updates and notifications on the platform. Finance teams can see all expenses in real-time to help ensure compliance with not under/overstating.
    • The expense management platform automatically records the transactions paid with debit/credit card – where each employee must upload a receipt/invoice. The solution will read from this and fill in information such as amount, date, and supplier details. Also, employees can add notes on the expense and select from a wide range of predetermined categories.
    • Invoices received via inboxes that require payment from a bank account can easily be transferred (through upload/drag and drop) into the expense management software and automatically read by the solution. Information such as amounts, supplier details, and due dates will be populated automatically. Additionally, payment details will be remembered if previously this supplier has been paid.
    • Finance teams can review all those receipts and invoices – they can amend categories to allocate to the appropriate financial category and adjust VAT rates based on the applicable law. This ensures compliance with the right presentation of expenses on financial statements and tax compliance.
    • The above actions are recorded by the expense management software and kept on it, thus creating the perfect audit trail for all stakeholders.
    • All of the above actions can be automatically posted on the accounting software through integration without the requirement of export and import. Lastly, businesses can export transactions via excel for additional review and filtering.

    Payhawk’s expense management solution offers all of the above. So, why go through a lengthy process to create the perfect audit trail when Payhawk’s software already has it all? Book a demo to learn more from our team.

    Ali Ali - Financial Controller and chartered accountant at Payhawk - the spend management solution of the future.
    Ali Ali
    Financial Controller
    LinkedIn

    Ali Ali is a financial controller in Payhawk. Ali is a chartered accountant with prior BIG 4 experience as an audit manager. Has experience auditing companies across Europe and the US reporting under various GAAP. Experienced in controls over financial reporting.

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