audit of payroll & personnel cycle

7/17/2019 Audit of Payroll & Personnel Cycle

http://slidepdf.com/reader/full/audit-of-payroll-personnel-cycle 1/31

©2010 Prentice Hall Business Publishing,©2010 Prentice Hall Business Publishing, Auditing 13/e, Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 20 - 1



©2010 Prentice Hall Business Publishing,©2010 Prentice Hall Business Publishing, Auditing 13/e, Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 20 -20 - 22

Learning Objective 1

Identify the accounts and

transactions in the payroll

and personnel cycle.




The oerall ob!ectie in the audit o" the #ayroll

and #ersonnel cycle is to ealuate $hether the

account balances a""ected by the cycle are"airly stated in accordance $ith generally

acce#ted accounting #rinci#les%

Accounts in the Payroll

and Personnel Cycle



©2010 Prentice Hall Business Publishing,©2010 Prentice Hall Business Publishing, Auditing 13/e, Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 20 -20 - &&


and Personnel CycleAccrued Wages, Salaries,Bonuses, and Commissions

Payment Beginningbalance

Earned wages,salaries, etc.

Ending balance

DirectLabor

Cash in Bank

Payment or salaries

Payment or !ayroll ta"es

Withheld #ncome $a"es

and %ther DeductionsPayment Beginning

balance

Payrollwithholding

Ending balance



©2010 Prentice Hall Business Publishing,©2010 Prentice Hall Business Publishing, Auditing 13/e, Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 20 -20 - ''


and Personnel Cycle

Cash in Bank

Payment or salaries

Payment or !ayroll ta"es

Withheld #ncome $a"esand %ther Deductions

Payment Beginningbalance

Payrollwithholding

Ending balance

Accrued Payroll

$a" E"!ensePayment Beginning

balance

Payrollta" e"!ense

Ending balance

Payroll $a" E"!ense



©2010 Prentice Hall Business Publishing,©2010 Prentice Hall Business Publishing, Auditing 13/e, Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 20 -20 - ((


and Personnel Cycle)n *ost syste*s the accrued $ages and)n *ost syste*s the accrued $ages and

salaries account is used only at thesalaries account is used only at the

end o" an accounting #eriod%end o" an accounting #eriod%



©2010 Prentice Hall Business Publishing,©2010 Prentice Hall Business Publishing, Auditing 13/e, Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 20 -20 - ++

Learning Objective 2

Describe the business functions

and the related documents and

records in the payroll and personnel cycle.



©2010 Prentice Hall Business Publishing,©2010 Prentice Hall Business Publishing, Auditing 13/e, Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 20 -20 -

Business Functions in the

Cycle and RelatedDocuments and Records

The #ayroll and #ersonnel cycle%

Begins Hiring o" #ersonnel

Ends Pay*ents



©2010 Prentice Hall Business Publishing,©2010 Prentice Hall Business Publishing, Auditing 13/e, Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 20 -20 - ..

Personnel and m!loyment

Personnel records

eduction authoriation "or*

ate authoriation "or*




"ime#ee!ing and Payroll

Pre!aration$ime Card

&ob $ime $icket

Payroll $ransaction 'ile

Payroll &ournal

Ti*eee#ing and

Payroll Pre#aration




Payroll $aster File

A #ayroll *aster "ile is used "or

recording each #ayroll transaction

"or each e*#loyee and *aintaining totale*#loyee $ages #aid "or the year to date%




Payment o% Payroll

Payroll chec

Payroll ban account reconciliation




Pre!aration o% Payroll "a&

Returns and Payment o%"a&es -2 4or*

Payroll ta5 returns



©2010 Prentice Hall Business Publishing,©2010 Prentice Hall Business Publishing, Auditing 13/e, Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 20 -20 - 1&1&

Learning Objective '

Understand internal control and

design and perform tests of

controls and substantive tests of transactions for the payroll




©2010 Prentice Hall Business Publishing,©2010 Prentice Hall Business Publishing, Auditing 13/e, Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 20 -20 - 1'1'

$ethodology %or Designing

Controls and (ubstantive"ests(nderstand internal control ) !ayroll and !ersonnel

Audit !rocedures

Sam!le si*e

#tems to select

$iming

Assess !lanned control risk ) !ayroll and !ersonnel

Determine e"tent o testing controls

Design tests o controls andsubstanti+e tests o transactions

or !ayroll and !ersonnel to meet

transactionrelated audit ob-ecti+es



©2010 Prentice Hall Business Publishing,©2010 Prentice Hall Business Publishing, Auditing 13/e, Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 20 -20 - 1(1(

)nderstand *nternal

Control +Payroll andPersonnel Cycle Ade6uate se#aration o" duties

Pro#er authoriation

Ade6uate docu*ents and records Physical control oer assets and records

)nde#endent checs on #er"or*ance



©2010 Prentice Hall Business Publishing,©2010 Prentice Hall Business Publishing, Auditing 13/e, Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 20 -20 - 1+1+

Payroll "a& Forms and

Payments

Ti*ely #ay*ent o" the #ayroll ta5es

$ithheld and other $ithholdings

Pre#aration o" #ayroll ta5 "or*s




*nventory and Fraudulent

Payroll Considerations

Tests "or none5istent e*#loyees

elationshi# bet$een #ayroll

and inentory aluation



©2010 Prentice Hall Business Publishing,©2010 Prentice Hall Business Publishing, Auditing 13/e, Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 20 -20 - 1.1.

)denti"y client business

riss a""ecting

#ayroll liability accounts


"estso% Balances %or PayrollLiabilities

7et tolerable *isstate*ent

and assess inherent ris

"or #ayroll liability accounts

Assess control ris "or the

#ayroll and #ersonnel cycle

Phase )

Phase )

Phase )






esign and #er"or*

tests o" controls and

substantie tests

o" transactions

"or the #ayroll and

#ersonnel cycle

Phase ))




Ti*ing

)te*s to select

7a*#le sie

Audit #rocedures



esign and #er"or*

analytical #rocedures

"or the #ayroll and

#ersonnel cycle

esign tests o"

details o" #ayroll

accounts balancesto satis"y

balance-related

audit ob!ecties

Phase )))

Phase )))




Learning Objective ,

Design and perform analytical

procedures for the payroll





Analytical Procedures

%or the Payroll andPersonnel Cycle

Com!are direct labor as a

!ercentage o sales with

!re+ious years

isstatement o directlabor and in+entory

Analytical !rocedure

Com!are !ayroll e"!ense

account balances with

!re+ious years

isstatement o !ayroll

e"!ense accounts

Possible misstatement



©2010 Prentice Hall Business Publishing,©2010 Prentice Hall Business Publishing, Auditing 13/e, Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 20 -20 - 2&2&

Analytical Procedures

%or the Payroll andPersonnel CycleAnalytical !rocedure

Com!are commission e"!ense

as a !ercentage o sales with

!re+ious years

isstatement o

commission e"!ense

and commission liability

Com!are !ayroll ta" e"!ense

as a !ercentage o salaries and

wages with !re+ious years

isstatement o !ayroll

ta" e"!ense and !ayroll

ta" liability

Possible misstatement

Com!are accrued !ayroll ta"

accounts with !re+ious years

isstatement o accrued

!ayroll ta"es and e"!ense



©2010 Prentice Hall Business Publishing,©2010 Prentice Hall Business Publishing, Auditing 13/e, Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 20 -20 - 2'2'

Learning Objective -

Design and perform tests of

details of balances for accounts

in the payroll and personnel cycle.



©2010 Prentice Hall Business Publishing,©2010 Prentice Hall Business Publishing, Auditing 13/e, Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 20 -20 - 2(2(

".o $ajor Balance/

relatedAudit Objectives1% Accruals in the trial balance

are stated at the correct

a*ounts 8accuracy9%

2% Transactions in the #ayroll and

#ersonnel cycle are recorded

in the #ro#er #eriod 8cuto""9%



©2010 Prentice Hall Business Publishing,©2010 Prentice Hall Business Publishing, Auditing 13/e, Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 20 -20 - 2+2+

"ests o% Details o%

Balances%or Liability Accounts A*ounts $ithheld "ro* e*#loyees: #ay

Accrued salaries and $ages

Accrued co**issions Accrued bonuses

Accrued acation #ay, sic #ay, or other bene"its

Accrued #ayroll ta5es




"ests o% Details o%

Balances%or &!ense Accounts ;""icers: co*#ensation

<o**issions

Payroll ta5 e5#ense Total #ayroll

<ontract labor



©2010 Prentice Hall Business Publishing,©2010 Prentice Hall Business Publishing, Auditing 13/e, Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 20 -20 - 2.2.

Presentation and

Disclosure Objectives e6uired disclosures are not e5tensie

7o*e co*#le5 transactions re6uire

"ootnote disclosure




"y!es o% Audit "ests %or

the Payroll andPersonnel Cycle

$%C / S$%$ / AP / $DB0 Suicient a!!ro!riate e+idence !er 1AAS

Cash inBank

PayrollLiabilities

Direct Labor andPayroll E"!enses

Payments E"!enses

Audited by$%C, S$%$, and AP

Endingbalance

Endingbalance

Audited by AP and $DB

Audited by$%C, S$%$, and AP