AUDITING AND ASSURANCE SERVICES IN MALAYSIA
AUDITING AND ASSURANCE SERVICES IN MALAYSIATOPIC 11: AUDIT OF
PAYROLL & PERSONNEL CYCLE
AUD390 AUDITING DIAAUD390 AUDITING DIAAUDIT OF PAYROLLAND
PERSONNEL CYCLEOVERVIEW OFPAYROLL & PERSONNEL CYCLEKEY
CONTROLACTIVITIESTYPES OF AUDITTESTS PERFORMEDOVERVIEW OF PAYROLL
& PERSONNEL CYCLEObjective to audit:To evaluate whether the
account affected by the cycle are fairly presented in accordance
with generally accepted accounting principlesDifferences between
this cycle and the other cycles:There is only 1 class of
transactions for payrollTransactions are far more significant than
related balance sheet accountsInternal control over payroll are
effective for almost all companies
AUD390 AUDITING DIAAUD390 AUDITING DIACLASSES OF
TRANSACTIONSACCOUNTSBUSINESS FUNCTIONSDOCUMENTS &
RECORDSPayrollPayroll cashAll payroll expense accountsAll payroll
withholding accountsAll payroll accrual accounts
Personnel & employment
Timekeeping & payroll preparation
Payment of payroll
Preparation of payroll tax returns & payment of
taxesPersonnel recordsDeduction authorization formRate
authorization form
Time cardJob time cardPayroll transaction listingPayroll journal
or listingPayroll master file
Payroll chequePayroll bank account reconciliation
W-2 formPayroll tax returnKEY CONTROL ACTIVITIESAdequate
separation of dutiesProper authorizationAdequate documents &
recordsPhysical control over assets and recordsIndependent check on
performancePreparation of Payroll Tax FormsPayment of the Payroll
Taxes Withheld and Other Withholdings on a timely basisAUD390
AUDITING DIA1. Adequate Separation Of DutiesAUD390 AUDITING
DIAPurpose: To prevent overpayments and payments to nonexistent
employeesTherefore, Human Resource Department should be independent
of the payroll functionE.g.Payroll processing (include authorizing
for addition and termination of employees, changes in pay rates
& deductions) should be separate from the custody of signed
payroll cheque2. Proper AuthorizationAUD390 AUDITING DIAPurpose: To
ensure that the payroll payment are for authorized purposesE.g.The
hours worked by each employee, especially overtime, should be
authorized by the employees supervisorEvidence of approval maybe
noted on all time cards3. Adequate Documents & RecordsAUD390
AUDITING DIAPurpose: To ensure adequate number of documents &
records represent the transactions E.g.The existence of time card
or punch card to verify the attendance of employee to work
4. Physical Control Over Assets & RecordsAUD390 AUDITING
DIAPurpose: To ensure payroll cheques are being used for authorized
transactions onlyE.g.Access to unsigned cheques should be
restrictedCheque should be signed by an independent person4.
Physical Control Over Assets & RecordsAUD390 AUDITING
DIAE.g.Payroll cheque should be distributed by someone independent
of the payroll and timekeeping functionsAny unclaimed cheques
should be returned for redepositAccess to the cheque signed-machine
should be restricted 5. Independent Check On PerformanceAUD390
AUDITING DIAPurpose: To ensure payroll transaction are monitored
accordingly by responsible personE.g.Payroll computations should be
independently verified, including comparison of batch totals to
summary report6. Preparation Of Payroll Tax FormsAUD390 AUDITING
DIAPurpose: To prevent a potential liability for unpaid taxes,
penalty and interest if the client fails to prepare the tax forms
properlyE.g.Perform detailed reconciliation of the information on
the tax forms and the payroll records6. Preparation Of Payroll Tax
FormsAUD390 AUDITING DIAIndication of potential misstatements:The
payment of penalties and interest in the past for improper
paymentsNew personnel in the department responsible for the
preparation of returnsLack of internal verification of the
informationThe existence of serious cash flow problems for the
client7. Payment Of The Payroll Taxes Withheld & Other
Withholdings On A Timely BasisAUD390 AUDITING DIAPurpose: To ensure
the payment of the payroll taxes withheld & other withholdings
on a timely basisE.g.Determine the clients requirements for
submitting the payments by referring to sources such as laws, union
contracts & agreements with employees
