Chapter 21 Audit of the Payroll and Personnel Cycle. Copyright 2014 Pearson Education

Transcription

1 Chapter 21 Audit of the Payroll and Personnel Cycle

2 Identify the accounts and transactions in the payroll and personnel cycle. Describe the business functions and the related documents and records in the payroll and personnel cycle. Understand internal control and design and perform tests of controls and substantive tests of transactions for the payroll and personnel cycle. 21-2

3 Design and perform analytical procedures for the payroll and personnel cycle. Design and perform tests of details of balances for accounts in the payroll and personnel cycle. 21-3

4 1 Identify the accounts and transactions in the payroll and personnel cycle. 21-4

5 The overall objective in the audit of the payroll and personnel cycle is to evaluate whether the account balances affected by the cycle are fairly stated in accordance with applicable accounting standards. 21-5

6 21-6

7 In most systems, the accrued wages and salaries account is used only at the end of an accounting period. 21-7

8 2 Describe the business functions and the related documents and records in the payroll and personnel cycle. 21-8

9 The payroll and personnel cycle. Begins Personnel Hiring Ends Payments 21-9

10 Human Resource records Deduction authorization form Rate authorization form 21-10

11 Time Record Job Time Ticket Payroll Transaction File Payroll Journal Timekeeping and Payroll Preparation 21-11

12 A payroll master file is used for recording payroll transactions for each employee and maintaining total employee wages paid for the year to date

13 Payroll check Payroll bank account reconciliation 21-13

14 W-2 Form Payroll tax returns 21-14

15 3 Understand internal control and design and perform tests of controls and substantive tests of transactions for the payroll and personnel cycle

16 Understand internal control payroll and personnel Assess planned control risk payroll and personnel Determine extent of testing controls Design tests of controls and substantive tests of transactions for payroll and personnel to meet transaction-related audit objectives Audit procedures Sample size Items to select Timing 21-16

17 Adequate separation of duties Proper authorization Adequate documents and records Physical control over assets and records Independent checks on performance 21-17

18 Preparation of payroll tax forms Timely payment of the payroll taxes withheld and other withholdings 21-18

19 Relationship between payroll and inventory valuation Tests for nonexistent employees 21-19

20 Identify client business risks affecting payroll liability accounts Set performance materiality and assess inherent risk for payroll liability accounts Assess control risk for the payroll and personnel cycle Phase I Phase I Phase I 21-20

21 Design and perform tests of controls and substantive tests of transactions for the payroll and personnel cycle Phase II 21-21

22 Design and perform analytical procedures for the payroll and personnel cycle Design tests of details of payroll accounts balances to satisfy balance-related audit objectives Phase III Audit procedures Sample size Items to select Timing Phase III 21-22

23 4 Design and perform analytical procedures for the payroll and personnel cycle

24 Analytical procedure Compare payroll expense account balances with previous years Compare direct labor as a percentage of sales with previous years Possible misstatement Misstatement of payroll expense accounts Misstatement of direct labor and inventory 21-24

25 Analytical procedure Compare commission expense as a % of sales with previous years Compare payroll tax expense as a % of salaries and wages with prior year Compare accrued payroll tax accounts with prior year Possible misstatement Misstatement of commission expense and commission liability Misstatement of payroll tax expense and payroll tax liability Misstatement of accrued payroll taxes and expense 21-25

26 5 Design and perform tests of details of balances for accounts in the payroll and personnel cycle

27 1. Accruals in the trial balance are stated at the correct amounts (accuracy). 2. Transactions in the payroll and personnel cycle are recorded in the proper period (cutoff)

28 Amounts withheld from employees pay Accrued salaries and wages Accrued commissions Accrued bonuses Accrued vacation pay, sick pay, or other benefits Accrued payroll taxes 21-28

29 Officers compensation Commissions Payroll tax expense Total payroll Contract labor 21-29

30 Required disclosures are not extensive Some complex transactions require footnote disclosure 21-30

31 Cash in Bank Payroll Liabilities Direct Labor and Payroll Expenses Payments Audited by TOC, STOT, and AP Expenses Audited by TOC, STOT, and AP Ending balance Ending balance Audited by AP and TDB TOC + STOT + AP + TDB = Sufficient appropriate evidence 21-31

32 21-32

33 Copyright All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America