Audit of payroll and personnel cycle

Lecture 9
 Accounts and transactions in the payroll
and personnel cycle

Business functions and related

documents and records
Outline
Methodology for tests of controls and
substantive tests of transactions

Methodology for substantive analytical

procedures and tests of detail of balances
 Accounts in
the payroll &
personnel
cycle
 • Human resource records: date of employment,
personnel investigations, rates of pay, authorised
deductions, performance evaluations, termination of
employment.
Human • Deduction authorisation: income tax, social
insurance, health insurance
resources • Rate authorisation:
 Summarize
Prepare time and calculate
records by gross pay,
Timekeeping employees deductions,
and net pay
and payroll
preparation Payment of
Prepare
payroll
payroll
records
Documents and records
Methodology for TOC and STOT
Understand internal control – payroll and personnel

Assess planned control risk – payroll and personnel

Determine extent of testing controls

Audit procedures
Design tests of controls and
substantive tests of transactions Sample size
for payroll and personnel to meet
transaction-related audit Items to select
objectives
Timing
 Independent Adequate
Undestand checks on
performance
separation of
duties
internal
control and Physical Proper
assess control control authorisation

risk Adequate
documents
and records
TOC & STOT TABLE 20-2
 Relationship
between Tests for
payroll and nonexistent
inventory employees
Inventory and valuation
fraudulent
payroll
considerations Tests for Fraudulent
Fraudulent Expense
Hours Reports
 Methodology for SAP and TDB
Client business risks affecting payroll liability accounts Phase I

Set TM and assess IR Phase I

Assess CR Phase I

Design and perform TOC and substantive tests of

Phase II
Transactions for the payroll and personnel cycle
Methodology for SAP and TDB

SAP Phase III

Audit procedures

Sample size
STDB Items to select
Phase III

Timing
Substantive analytical procedures
 Accruals in the trial balance
are stated at the correct
Testing amounts (accuracy).

payroll
liabilities Transactions in the payroll and
personnel cycle are recorded
in the proper period (cutoff)
Tests of • Amounts withheld from employees’ pay
Details of • Accrued salaries and wages
Balances • Accrued commissions
• Accrued bonuses
• Accrued vacation pay, sick pay, or other benefits
• Accrued payroll taxes
 Officers’
Commissions
compensation
Tests of
Details of
Payroll tax
Balances for expense
Total payroll
Expense
Accounts
Contract labor
Presentatio
n and Required
disclosures are not
Some complex
transactions require
Disclosure extensive footnote disclosure

Objectives
Types of Audit Tests for the Payroll and Personnel Cycle
 20-19
Tutorial
exercises
20-20

20-22