In: Accounting
In this chapter, focus on the following:
audit testing procedures for the Payroll and Personnel Cycles
internal control and analytical procedures
Audit Test Procedures for Payroll and Personnel Cycles
Objective of this audit is to identify, evaluate and ensure that the account balances which are affected by the payroll and personnel cycle are fairly stated in accordance with generally accepted accounting principles. These accounts include: 1. Salaries 2.Accrued Salaries, Bonus 3. Taxes on payroll.
Audit Procedures
1. Understand the payroll and personnel procedure: This process starts with hiring of the employees and ends with payment fo salaries, benefits and taxes
2.Records to be checked : Personnel Records, Forms required to be filed under law. Payroll Masterfile should contain timecards, time tickets, payroll tansactin file, payroll journal.
3. For checking payments of Payroll : Check the payroll checks issued and reconcile the same with bank statement
4. Check the payroll tax returns filed if they are filed within the precribed time limit and correctly filed.
5. Undertsand and assess the internal controls in place, assess the control risk involved and do a cost benefit analysis of the testing controls
6.
Analytical Procedure | Possible Misstatement |
Compare Payroll balance with previous years | Misstatment of payroll expense accounts |
Compare Direct Labor as % to sales with previous years | Misstatement of direct labor and inventory |
Compare commission expense as a % of sales with previous year | Misstatement of commission expense and commission liability |
Compare Payroll tax as a % of salaries with previous years | Misstatementof payroll tax expense and payroll tax liability |
Compare accrued payroll tax with previous year | Misstatement of accrued payroll taxes and payroll tax expense |
7. Design and Perform Tests of Details of Balances for accounts in payroll and personnel cycle such Accrued salaries and wages, accrued commisions, accrued bonus, accrued payrol taxes, Total payroll expense, tax expense, etc