Professional Documents
Culture Documents
The main differences between the payroll and personel cycle and the other cycle include :
There is only one class of transaction for payroll
The transactions are generally far more significant than related balance sheet account
Internal controls over payroll are effective for almost companies, even small ones.
Human Resources
The Payroll and Personel cycle :
Begin with hiring employees
End with paying them for the services they performed
Payroll
Timekeeping and Payroll preparation : these function are important in the audit of payroll
because they directly affect payroll expense. The following document are involved in
timekeeping and payroll :
Time Record = document indicating the time the hourly employee started and stoped
working.
Job time ticket = form indicating which job employee worked on during a given period
Payroll transaction file = computer generated file including all payroll transaction
proceed during a given time period
Payroll journal or listing = generated from the payroll transaction file showing payroll
detail for each employees
Payroll master file = record of every payroll check, including gross pay, deduction, and
net pay for each employees
Payment-treasure
Payment of payroll : the approval and distribution of payroll must be carefully controlled to
prevent theft. To increase control, payroll disbursement are usually processed separately from
other disbursement
Payroll bank account reconciliation : An imprest payroll is separate payroll account in which
small balance maintenance and the exact amount of payroll is transferred immediately before
distribution of payroll.
Preparation of payroll tax return and payment of taxes : federal and state laws require timely
preparation and payment of payroll taxes.
Internal Control for Payroll and Personel cycle
Internal control for payroll is normally high structured and cotrolled, as a result, control risk is
often assessed al low for this cycle
Test of Control & Substantive test of Transaction
Test of control and substantive test of transaction in this cycle are usually not extentive for this
reasons :
Employees are likely to complain to management if they are underpaid
All payroll transaction are typically uniform and uncomplicated
Payroll transaction are subject to audit by federal and state department for income tax
withholding, social security, and unemployment taxes
Key Internal control
Adequate separation of duties : payroll function should be kept independent of the human
resources department. Ex/no ghost employee
Proper authorization : Human resources should authorized additions and deletions to payroll,
approval is needed on all time card.
Adequate document and record : depand on nature of the company, ex/ time card, peicerate, and
prenumbered document
Physical control over asset and record : access to unsigned payroll check should be restricted, as
should access to direct deposit information.
Independent checks on performance : a member of management or other responsible employee
should review payroll for obvious misstatement
Payroll tax form and payment : the auditor should review the preparation of at least one of each
type of payroll tax form during the understanding of internal phase of the audit.
Timely payment of payroll taxes and other withholding : test whether the client has fulfilled its
legal obligation in submitting payment for all withholding on a timely
Inventory and fraudulent payroll consideration : if payroll affect the valuation of inventory.
Relationship between payroll and inventory valuation : when payroll is a significant portion of
inventory, the improper classification of payroll can materially affect asset valuation for work in
process and finished goods, or construction in process,
Fraudulent payroll consideration :
Test for nonexistent employees
Test for fraudulent hours : audit software for unusual amount
Fraudulent expense report