This document discusses the audit of a company's payroll and personnel cycle. It outlines the key objectives of auditing this cycle, which are to evaluate if payroll expenses and related accounts are fairly presented. It also describes the major differences between this cycle and other cycles, as well as the key control activities, types of transactions and documents, and audit tests performed on payroll functions and tax compliance. The overall purpose of testing these controls is to ensure payroll payments are accurate and authorized, taxes are properly withheld and paid, and financial reporting presents payroll information correctly.
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topik audit uitm payroll
Original Title
Topic 11 Audit of Payroll & Personnel Cycle (1)
This document discusses the audit of a company's payroll and personnel cycle. It outlines the key objectives of auditing this cycle, which are to evaluate if payroll expenses and related accounts are fairly presented. It also describes the major differences between this cycle and other cycles, as well as the key control activities, types of transactions and documents, and audit tests performed on payroll functions and tax compliance. The overall purpose of testing these controls is to ensure payroll payments are accurate and authorized, taxes are properly withheld and paid, and financial reporting presents payroll information correctly.
This document discusses the audit of a company's payroll and personnel cycle. It outlines the key objectives of auditing this cycle, which are to evaluate if payroll expenses and related accounts are fairly presented. It also describes the major differences between this cycle and other cycles, as well as the key control activities, types of transactions and documents, and audit tests performed on payroll functions and tax compliance. The overall purpose of testing these controls is to ensure payroll payments are accurate and authorized, taxes are properly withheld and paid, and financial reporting presents payroll information correctly.
AUDIT OF PAYROLL AND PERSONNEL CYCLE OVERVIEW OF PAYROLL & PERSONNEL CYCLE KEY CONTROL ACTIVITIES TYPES OF AUDIT TESTS PERFORMED Objective to audit: To evaluate whether the account affected by the cycle are fairly presented in accordance with generally accepted accounting principles Differences between this cycle and the other cycles: There is only 1 class of transactions for payroll Transactions are far more significant than related balance sheet accounts Internal control over payroll are effective for almost all companies
AUD390 AUDITING DIA AUD390 AUDITING DIA CLASSES OF TRANSACTIONS ACCOUNTS BUSINESS FUNCTIONS DOCUMENTS & RECORDS Payroll Payroll cash All payroll expense accounts All payroll withholding accounts All payroll accrual accounts
1. Personnel & employment
2. Timekeeping & payroll preparation
3. Payment of payroll
4. Preparation of payroll tax returns & payment of taxes Personnel records Deduction authorization form Rate authorization form
Time card Job time card Payroll transaction listing Payroll journal or listing Payroll master file
Payroll cheque Payroll bank account reconciliation
W-2 form Payroll tax return 1. Adequate separation of duties 2. Proper authorization 3. Adequate documents & records 4. Physical control over assets and records 5. Independent check on performance 6. Preparation of Payroll Tax Forms 7. Payment of the Payroll Taxes Withheld and Other Withholdings on a timely basis AUD390 AUDITING DIA AUD390 AUDITING DIA Purpose: To prevent overpayments and payments to nonexistent employees Therefore, Human Resource Department should be independent of the payroll function E.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 cheque AUD390 AUDITING DIA Purpose: To ensure that the payroll payment are for authorized purposes E.g. The hours worked by each employee, especially overtime, should be authorized by the employees supervisor Evidence of approval maybe noted on all time cards AUD390 AUDITING DIA Purpose: 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
AUD390 AUDITING DIA Purpose: To ensure payroll cheques are being used for authorized transactions only E.g. Access to unsigned cheques should be restricted Cheque should be signed by an independent person AUD390 AUDITING DIA E.g. Payroll cheque should be distributed by someone independent of the payroll and timekeeping functions Any unclaimed cheques should be returned for redeposit Access to the cheque signed-machine should be restricted AUD390 AUDITING DIA Purpose: To ensure payroll transaction are monitored accordingly by responsible person E.g. Payroll computations should be independently verified, including comparison of batch totals to summary report AUD390 AUDITING DIA Purpose: To prevent a potential liability for unpaid taxes, penalty and interest if the client fails to prepare the tax forms properly E.g. Perform detailed reconciliation of the information on the tax forms and the payroll records AUD390 AUDITING DIA Indication of potential misstatements: The payment of penalties and interest in the past for improper payments New personnel in the department responsible for the preparation of returns Lack of internal verification of the information The existence of serious cash flow problems for the client AUD390 AUDITING DIA Purpose: To ensure the payment of the payroll taxes withheld & other withholdings on a timely basis E.g. Determine the clients requirements for submitting the payments by referring to sources such as laws, union contracts & agreements with employees