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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
7/17/2019 Audit of Payroll & Personnel Cycle
http://slidepdf.com/reader/full/audit-of-payroll-personnel-cycle 2/31
©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.
7/17/2019 Audit of Payroll & Personnel Cycle
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©2010 Prentice Hall Business Publishing,©2010 Prentice Hall Business Publishing, Auditing 13/e, Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 20 -20 - 33
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
7/17/2019 Audit of Payroll & Personnel Cycle
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©2010 Prentice Hall Business Publishing,©2010 Prentice Hall Business Publishing, Auditing 13/e, Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 20 -20 - &&
Accounts in the Payroll
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
7/17/2019 Audit of Payroll & Personnel Cycle
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©2010 Prentice Hall Business Publishing,©2010 Prentice Hall Business Publishing, Auditing 13/e, Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 20 -20 - ''
Accounts in the Payroll
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
7/17/2019 Audit of Payroll & Personnel Cycle
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©2010 Prentice Hall Business Publishing,©2010 Prentice Hall Business Publishing, Auditing 13/e, Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 20 -20 - ((
Accounts in the Payroll
and Personnel Cycle)n *ost syste*s the accrued $ages and)n *ost syste*s the accrued $ages and
salaries account is used only at thesalaries account is used only at the
end o" an accounting #eriod%end o" an accounting #eriod%
7/17/2019 Audit of Payroll & Personnel Cycle
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©2010 Prentice Hall Business Publishing,©2010 Prentice Hall Business Publishing, Auditing 13/e, Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 20 -20 - ++
Learning Objective 2
Describe the business functions
and the related documents and
records in the payroll and personnel cycle.
7/17/2019 Audit of Payroll & Personnel Cycle
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©2010 Prentice Hall Business Publishing,©2010 Prentice Hall Business Publishing, Auditing 13/e, Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 20 -20 -
Business Functions in the
Cycle and RelatedDocuments and Records
The #ayroll and #ersonnel cycle%
Begins Hiring o" #ersonnel
Ends Pay*ents
7/17/2019 Audit of Payroll & Personnel Cycle
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©2010 Prentice Hall Business Publishing,©2010 Prentice Hall Business Publishing, Auditing 13/e, Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 20 -20 - ..
Personnel and m!loyment
Personnel records
eduction authoriation "or*
ate authoriation "or*
7/17/2019 Audit of Payroll & Personnel Cycle
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©2010 Prentice Hall Business Publishing,©2010 Prentice Hall Business Publishing, Auditing 13/e, Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 20 -20 - 1010
"ime#ee!ing and Payroll
Pre!aration$ime Card
&ob $ime $icket
Payroll $ransaction 'ile
Payroll &ournal
Ti*eee#ing and
Payroll Pre#aration
7/17/2019 Audit of Payroll & Personnel Cycle
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©2010 Prentice Hall Business Publishing,©2010 Prentice Hall Business Publishing, Auditing 13/e, Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 20 -20 - 1111
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%
7/17/2019 Audit of Payroll & Personnel Cycle
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©2010 Prentice Hall Business Publishing,©2010 Prentice Hall Business Publishing, Auditing 13/e, Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 20 -20 - 1212
Payment o% Payroll
Payroll chec
Payroll ban account reconciliation
7/17/2019 Audit of Payroll & Personnel Cycle
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©2010 Prentice Hall Business Publishing,©2010 Prentice Hall Business Publishing, Auditing 13/e, Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 20 -20 - 1313
Pre!aration o% Payroll "a&
Returns and Payment o%"a&es -2 4or*
Payroll ta5 returns
7/17/2019 Audit of Payroll & Personnel Cycle
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©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
and personnel cycle.
7/17/2019 Audit of Payroll & Personnel Cycle
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©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
7/17/2019 Audit of Payroll & Personnel Cycle
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©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
7/17/2019 Audit of Payroll & Personnel Cycle
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©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 $ithholdings
Pre#aration o" #ayroll ta5 "or*s
7/17/2019 Audit of Payroll & Personnel Cycle
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©2010 Prentice Hall Business Publishing,©2010 Prentice Hall Business Publishing, Auditing 13/e, Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 20 -20 - 11
*nventory and Fraudulent
Payroll Considerations
Tests "or none5istent e*#loyees
elationshi# bet$een #ayroll
and inentory aluation
7/17/2019 Audit of Payroll & Personnel Cycle
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©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
$ethodology %or Designing
"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 )
7/17/2019 Audit of Payroll & Personnel Cycle
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©2010 Prentice Hall Business Publishing,©2010 Prentice Hall Business Publishing, Auditing 13/e, Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 20 -20 - 2020
$ethodology %or Designing
"estso% Balances %or PayrollLiabilities
esign and #er"or*
tests o" controls and
substantie tests
o" transactions
"or the #ayroll and
#ersonnel cycle
Phase ))
7/17/2019 Audit of Payroll & Personnel Cycle
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©2010 Prentice Hall Business Publishing,©2010 Prentice Hall Business Publishing, Auditing 13/e, Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 20 -20 - 2121
Ti*ing
)te*s to select
7a*#le sie
Audit #rocedures
$ethodology %or Designing
"estso% Balances %or PayrollLiabilities
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 )))
7/17/2019 Audit of Payroll & Personnel Cycle
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©2010 Prentice Hall Business Publishing,©2010 Prentice Hall Business Publishing, Auditing 13/e, Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 20 -20 - 2222
Learning Objective ,
Design and perform analytical
procedures for the payroll
and personnel cycle.
7/17/2019 Audit of Payroll & Personnel Cycle
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©2010 Prentice Hall Business Publishing,©2010 Prentice Hall Business Publishing, Auditing 13/e, Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 20 -20 - 2323
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
7/17/2019 Audit of Payroll & Personnel Cycle
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©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
7/17/2019 Audit of Payroll & Personnel Cycle
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©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.
7/17/2019 Audit of Payroll & Personnel Cycle
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©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%
7/17/2019 Audit of Payroll & Personnel Cycle
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©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
7/17/2019 Audit of Payroll & Personnel Cycle
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©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
"ests o% Details o%
Balances%or &!ense Accounts ;""icers: co*#ensation
<o**issions
Payroll ta5 e5#ense Total #ayroll
<ontract labor
7/17/2019 Audit of Payroll & Personnel Cycle
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©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
7/17/2019 Audit of Payroll & Personnel Cycle
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©2010 Prentice Hall Business Publishing,©2010 Prentice Hall Business Publishing, Auditing 13/e, Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 20 -20 - 3030
"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