AuditofthePayrollandPersonnelCycle Chapter17 AccountsandTransactionsinthePayrollandPersonnelCycle Theoverallobjectiveintheauditofthepayrollandpersonnelcycleistoevaluatewhethertheaccountbalancesaffectedbythecyclearefairlystatedinaccordancewithgenerallyacceptedaccountingprinciples AccountsandTransactionsinthePayrollandPersonnelCycle AccruedWages Salaries Bonuses andCommissionsPaymentBeginningbalanceEarnedwages salaries etc Endingbalance CashinBankPaymentforsalariesPaymentforpayrolltaxes DirectLabor WithheldIncomeTaxesandOtherDeductionsPaymentBeginningbalancePayrollwithholdingEndingbalance AccountsandTransactionsinthePayrollandPersonnelCycle WithheldIncomeTaxesandOtherDeductionsPaymentBeginningbalancePayrollwithholdingEndingbalance AccruedPayrollTaxExpensePaymentBeginningbalancePayrolltaxexpenseEndingbalance CashinBankPaymentforsalariesPaymentforpayrolltaxes PayrollTaxExpense AccountsandTransactionsinthePayrollandPersonnelCycle Separateoperatingaccountsforpayrollalsonormallyincludeofficers salariesandbonuses officesalaries salessalariesandcommissions andindirectmanufacturinglabor AccountsandTransactionsinthePayrollandPersonnelCycle Theseaccountshavethesamerelationshiptoaccruedwagesandwithheldtaxesandotherdeductionsthatisshownfordirectlabor BusinessFunctionsintheCycleandRelatedDocumentsandRecords Thepayrollandpersonnelcyclebeginswiththehiringofpersonnelandendswithpaymenttotheemployeesfortheservicesperformedandtothegovernmentandotherinstitutionsforthewithheldandaccruedpayrolltaxesandbenefits PersonnelandEmployment Personnelrecords Deductionauthorizationform Rateauthorizationform TimekeepingandPayrollPreparation TimeCard JobTimeTicket PayrollTransactionFile PayrollJournal PayrollMasterFile PaymentofPayroll Payrollcheck Payrollbankaccountreconciliation PreparationofPayrollTaxReturnsandPaymentofTaxes W 2FormPayrollTaxReturns MethodologyforDesigningTestsofBalances AccountsReceivable Understandinternalcontrol payrollandpersonnel Assessplannedcontrolrisk payrollandpersonnel Evaluatecost benefitoftestingcontrols MethodologyforDesigningTestsofBalances AccountsReceivable Designtestsofdetailsofcontrolsandsubstantivetestsoftransactionsforpayrollandpersonneltomeettransaction relatedauditobjectives Auditprocedures Samplesize Itemstoselect Timing UnderstandInternalControl PayrollandPersonnelCycle AdequateseparationofdutiesProperauthorizationAdequatedocumentsandrecordsPhysicalcontroloverassetsandrecordsIndependentchecksonperformance SegregationofDuties Hiring firing rateandbenefitchanges HRAuthorizationoftimeworked supervisorProcessingofpayrollchecksCustodyofchecksanddistributionBankreconciliation ControlActivities Separatepersonnelfrompayrollprocessing can thireorchangerates Controlsovercheckdistributionsforfictitiousemployeesorpaidafterterminated DoubleendorsementssignofpossiblefraudReviewofpayrolldistributionreportsCorrecthours rates employees jobcodesRestrictedaccesstoblankchecks PayrollTaxFormsandPayments Paymentofthepayrolltaxeswithheldandotherwithholdingsonatimelybasis Preparationofpayrolltaxforms InventoryandFraudulentPayrollConsiderations Relationshipbetweenpayrollandinventoryvaluation Testsfornonexistentpayroll MethodologyforDesigningTestsofBalances AccountsReceivable Identifyclientbusinessrisksaffectingpayrollliabilityaccounts Settolerablemisstatementandassessinherentriskforpayrollliabilityaccounts Assesscontrolriskforthepayrollandpersonnelcycle MethodologyforDesigningTestsofBalances AccountsReceivable Designandperformtestsofcontrolsandsubstantivetestsoftransactionsforthepayrollandpersonnelcycle Designandperformanalyticalproceduresforthepayrollandpersonnelcycle MethodologyforDesigningTestsofBalances AccountsReceivable Designtestsofdetailsofpayrollaccountsbalancestosatisfybalance relatedauditobjectives Auditprocedures Samplesize Itemstoselect Timing AnalyticalProceduresforthePayrollandPersonnelCycle AnalyticalProcedurePossibleMisstatement ComparepayrollexpenseMisstatementofpayrollaccountbalancewithexpenseaccountspreviousyears ComparedirectlaborasaMisstatementofdirectpercentageofsaleswithlaborandinventorypreviousyears ComparecommissionMisstatementofexpenseasapercentageofcommissionexpenseandsaleswithpreviousyears commissionliability AnalyticalProceduresforthePayrollandPersonnelCycle AnalyticalProcedurePossibleMisstatement ComparepayrolltaxexpenseMisstatementofpayrollasapercentageofsalariesandtaxexpenseandpayrollwageswithpreviousyears taxliability CompareaccruedpayrolltaxMisstatementofaccruedaccountswithpreviousyears payrolltaxesandpayrolltaxexpense TestsofDetailsofBalancesforLiabilityAccounts Amountswithheldfromemployees pay Accruedsalariesandwages Accruedcommissions Accruedbonuses Accruedvacationpay sickpay orotherbenefits Accruedpayrolltaxes TestsofDetailsofBalancesforExpenseAccounts Officers compensation Commissions Payrolltaxexpense Totalpayroll Contractlabor TypesofAuditTestsforthePayrollandPersonnelCycle CashinBank PayrollLiabilities DirectLaborandPayrollExpenses Payments Expenses Endingbalance Endingbalance TOC