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7/28/2019 Audit Peng Ga Jian
1/26
2003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e, Arens/Elder/Beasley 17 - 1
Audit of the Payroll
and Personnel Cycle
7/28/2019 Audit Peng Ga Jian
2/26
2003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e, Arens/Elder/Beasley 17 - 2
Identify the accounts and
transactions in the payroll
and personnel cycle.
7/28/2019 Audit Peng Ga Jian
3/26
2003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e, Arens/Elder/Beasley 17 - 3
Accounts and Transactions in the
Payroll and Personnel Cycle
The overall objective in the audit of the payrolland personnel cycle is to evaluate whether the
account balances affected by the cycle are
fairly stated in accordance with generallyaccepted accounting principles.
7/28/2019 Audit Peng Ga Jian
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2003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e, Arens/Elder/Beasley 17 - 4
Accounts and Transactions in the
Payroll and Personnel CycleAccrued Wages, Salaries,Bonuses, and Commissions
Payment Beginningbalance
Earned wages,salaries, etc.
Ending balance
Cash in Bank
Payment
for salaries
Payment for
payroll taxes
Direct Labor
Withheld Income Taxes
and Other DeductionsPayment Beginningbalance
Payroll withholding
Ending balance
7/28/2019 Audit Peng Ga Jian
5/26
2003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e, Arens/Elder/Beasley 17 - 5
Accounts and Transactions in the
Payroll and Personnel Cycle
Withheld Income Taxesand Other Deductions
Payment Beginningbalance
Payroll withholding
Ending balance
Accrued Payroll Tax ExpensePayment Beginning balance
Payroll tax expense
Ending balance
Cash in Bank
Payment
for salaries
Payment for
payroll taxes
Payroll Tax Expense
7/28/2019 Audit Peng Ga Jian
6/26
2003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e, Arens/Elder/Beasley 17 - 6
Accounts and Transactions in the
Payroll and Personnel Cycle
Separate operating accounts for payroll alsonormally include officers salaries and bonuses,
office salaries, sales salaries and commissions,
and indirect manufacturing labor.
7/28/2019 Audit Peng Ga Jian
7/262003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e, Arens/Elder/Beasley 17 - 7
Accounts and Transactions in the
Payroll and Personnel Cycle
These accounts have the same relationship
to accrued wages and withheld taxes and
other deductions that is shown for direct labor.
7/28/2019 Audit Peng Ga Jian
8/262003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e, Arens/Elder/Beasley 17 - 8
Describe the business functions
and the related documents and
records in the payroll and
personnel cycle.
7/28/2019 Audit Peng Ga Jian
9/262003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e, Arens/Elder/Beasley 17 - 9
Business Functions in the Cycle and
Related Documents and Records
The payroll and personnel cycle begins withthe hiring of personnel and ends with payment
to the employees for the services performed
and to the government and other institutionsfor the withheld and accrued payroll taxes
and benefits.
7/28/2019 Audit Peng Ga Jian
10/262003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e, Arens/Elder/Beasley 17 - 10
Personnel and Employment
Personnel records
Deduction authorization form
Rate authorization form
7/28/2019 Audit Peng Ga Jian
11/262003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e, Arens/Elder/Beasley 17 - 11
Timekeeping and Payroll
Preparation
Time Card
Job Time Ticket
Payroll Transaction FilePayroll Journal
Payroll Master File
7/28/2019 Audit Peng Ga Jian
12/262003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e, Arens/Elder/Beasley 17 - 12
Payment of Payroll
Payroll check
Payroll bank account reconciliation
Paycheckfor
Dept.ofTreasurer
JohnDoe
Payche
ckfo
r
Date
Dept.
ofTre
asure
r
Jane
Doe
Date
7/28/2019 Audit Peng Ga Jian
13/262003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e, Arens/Elder/Beasley 17 - 13
Preparation of Payroll Tax
Return & Payment of Taxes
Form Pph 21 - 1721
Payroll Tax Return
7/28/2019 Audit Peng Ga Jian
14/262003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e, Arens/Elder/Beasley 17 - 14
Understand internal control and
design and perform tests ofcontrols and substantive tests
of transactions for thepayroll and personnel cycle.
7/28/2019 Audit Peng Ga Jian
15/262003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e, Arens/Elder/Beasley 17 - 15
Methodology for Designing Tests of
control and substantivePayroll
Understand internal control
payroll and personnel.
Assess planned control risk
payroll and personnel.
Determine extent
of testing controls.
7/28/2019 Audit Peng Ga Jian
16/262003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e, Arens/Elder/Beasley 17 - 16
Methodology for Designing Tests of
control and substantivePayroll
Design tests of details of
controls and substantive tests
of transactions for payroll
and personnel to meet
transaction-relatedaudit objectives.
Audit procedures
Sample size
Items to select
Timing
7/28/2019 Audit Peng Ga Jian
17/262003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e, Arens/Elder/Beasley 17 - 17
Understand Internal Control
Payroll and Personnel Cycle
Adequate separation of duties Proper authorization
Adequate documents and records
Physical control over assets and records
Independent checks on performance
7/28/2019 Audit Peng Ga Jian
18/262003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e, Arens/Elder/Beasley 17 - 18
Inventory and Fraudulent
Payroll Considerations
Relationship between payroll
and inventory valuation
Tests for nonexistent Employees
Test for fraudulent hours
7/28/2019 Audit Peng Ga Jian
19/262003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e, Arens/Elder/Beasley 17 - 19
Design and perform analytical
procedures for the payroll
and personnel cycle.
7/28/2019 Audit Peng Ga Jian
20/262003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e, Arens/Elder/Beasley 17 - 20
Analytical Procedures for the
Payroll and Personnel Cycle
Analytical Procedure Possible MisstatementCompare payroll expense Misstatement of payroll
account balance with expense accountsprevious years.
Compare direct labor as a Misstatement of directpercentage of sales with labor and inventory
previous years.Compare commission Misstatement ofexpense as a percentage of commission expense andsales with previous years. commission liability
7/28/2019 Audit Peng Ga Jian
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2003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e, Arens/Elder/Beasley 17 - 21
Analytical Procedures for the
Payroll and Personnel Cycle
Analytical Procedure Possible MisstatementCompare payroll tax expense Misstatement of payroll
as a percentage of salaries and tax expense and payrollwages with previous years. tax liability
Compare accrued payroll tax Misstatement of accruedaccounts with previous years. payroll taxes and payroll
tax expense
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2003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e, Arens/Elder/Beasley 17 - 22
Design and perform tests
of details of balances for
accounts in the payroll
and personnel cycles.
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2003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e, Arens/Elder/Beasley 17 - 23
Tests of Details of Balances
for Liability Accounts
Amounts withheld from employees pay
Accrued salaries and wagesAccrued commissions
Accrued bonuses
Accrued vacation pay, sick pay, or other benefits
Accrued payroll taxes
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2003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e, Arens/Elder/Beasley 17 - 24
Tests of Details of Balances
for Expense Accounts
Officers compensation
CommissionsPayroll tax expense
Total payroll
Contract labor
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2003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e, Arens/Elder/Beasley 17 - 25
Types of Audit Tests for the
Payroll and Personnel Cycle
Cash inBank
PayrollLiabilities
Direct Labor andPayroll Expenses
Payments Expenses
Ending
balance
Ending
balance
TOC+STOT+AP+TDB
= Sufficient competent evidence per GAAS
Audited byTOC,STOT, and AP
Audited byAP and TDB
Audited byTOC, STOT, and AP
Audited byAP and TDB
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2003 P i H ll B i P bli hi A di i d A S i 9/ A /Eld /B l 17 26
Thank You