1 CHAPTER 16 Audit of the Payroll and Personnel Cycle

CHAPTER 16Audit of the Payroll and

Personnel Cycle

- receipt of employee services and payment for those services

What What classes of transactionsclasses of transactions occur occur in the payroll and personnel cycle?in the payroll and personnel cycle?

In the audit of payroll andpersonnel, transactions are far

more significant than relatedbalance sheet accounts.

In the audit of payroll andpersonnel, transactions are far

more significant than relatedbalance sheet accounts.

Related balance sheetaccounts are less signifi-

cant than the volumeof transactions.

1. An employee is hired; personnel records are accumulated.

What is the What is the sequence of business sequence of business functionsfunctions that occurs in the payroll that occurs in the payroll

and personnel cycle?and personnel cycle?

PERSONNEL

Tom Taylor

Ace CompanyApplication for Employment

Name: Tom Taylor Employment history:__________________

Education:

Tom Taylor

Education:

Ace CompanyPersonnel Investigation

Employee Candidate: Tom Taylor Comments of References:

Tom Taylor

Education:

Ace CompanyPay Rate Authorization

Employee: Tom Taylor Date: 10/25/x9 Authorized rate: $7.70/hr Authorization:

Tom Taylor

Education:

Ace CompanyPay Rate Authorization

Employee: Tom Taylor Date: 10/25/x9 Authorized rate: $7.70/hr Authorization:

Form W-4Authorization for FederalIncome Tax Withholding

Employee name:

2. The employee works for the company; labor hours are accumulated.

Possibly throughuse of a time

clock andresulting

time cards

2. The employee works for the company; labor hours are accumulated.

In each department,management may accumulate

labor charged to jobs,processes, activities,

or cost centers.

3. Labor hours are entered into the payroll journal and pay is calculated.

timecards

payroll journal description net payNov.2, 19x9Tom Taylor 328.61

payroll master fileemployee _ $$ _Tom Taylor 11/2 net 328.61 y-t-d net 753.12

timecards

3. Labor hours are entered into the payroll journal and pay is calculated. This information is then used to update the payroll master file.

payroll master fileemployee _ $$ _Tom Taylor 11/2 net 328.61 y-t-d net 753.12

timecards

SummaryPayrollReport

This report sum-marizes payrollfor a period.

3. Labor hours are entered into the payroll journal and pay is calculated. This information is then used to update the payroll master file. Periodically, a summary payroll report is prepared.

4. The employee is paid through an imprest payroll account. The check is signed by the treasurer.

Ace Payroll

Jane Treasurer

Tom Taylor

5. At year-end, payroll accounting prepares federal W-2 forms and payroll tax returns.

payrollaccounting

W-2 formT.Taylorearned$21996.32in 19x9.

PayrollTax Return

How does an auditor How does an auditor design tests of design tests of controls and controls and

substantive tests of substantive tests of transactions for transactions for

payroll and payroll and personnel?personnel?

Understand controlsas they relate to pay-

roll and personnel

As discussedin chapter 9

Assess the plannedcontrol risk related to payroll and personnel

roll and personnel

In assessing control In assessing control risk, the auditor risk, the auditor should consider:should consider:

roll and personnel

In assessing control In assessing control risk, the auditor risk, the auditor should consider:should consider:

- adequate separation of duties- proper authorization- adequate documents and records- use of prenumbered documents- use of an imprest payroll account

roll and personnel

Evaluate cost-benefit of test-

ing controls

Will substantivetests be reduced

sufficiently to justify the cost ofperforming tests

of controls?

roll and personnel

ing controls

Design tests of controls and substantive tests of transactions related to payroll and personnel

roll and personnel

In designing In designing payroll and payroll and

personnel tests, personnel tests, the auditor the auditor

should consider:should consider:

Do allemployees

actuallyexist?

ing controls

roll and personnel

Isrecorded

laboraccurate?

should consider:should consider:Evaluate cost-benefit of test-

ing controls

roll and personnel

Havepersonnel actions

and wage ratechanges beenauthorized?

ing controls

roll and personnel

Are payrolltransactions

properly includedin the master file

and correctlysummarized?

ing controls

roll and personnel

Select a sample of employee files frompersonnel. Determine whether files arecomplete (job application, references,wage rate authorizations, W-4 form,deduction authorizations).

Using the same sample, cross-reference information from personnel to related information in payroll accounting.

How does an auditor interpretHow does an auditor interpretthe results of this test?the results of this test?

Payroll & Personnel Audit ProceduresPayroll & Personnel Audit Procedures

Employees with activepersonnel files are being paid.

How does an auditor interpretHow does an auditor interpretthe results of this test?the results of this test?

Using the same sample, recalculate pay, trace net pay to payroll journal, and cancelled payroll checks.

when examining cancelled paychecks, note signature of treasurer and endorsement of the employee

Ace Payroll

Jane Treasurer

Compare endorsement to employee signature on W-2

Select a sample of employee files frompayroll accounting. Cross-reference thisinformation to related files in personnel.

Employeesbeing paid have

active personnel files.

How does an auditor interpret How does an auditor interpret the results of this test?the results of this test?

This procedure addresses theThis procedure addresses theauditor’s concern regardingauditor’s concern regarding

nonexistent employeesnonexistent employees..

Payroll & Personnel Audit ProceduresPayroll & Personnel Audit ProceduresSelect a sample of employee files frompayroll accounting. Cross-reference thisinformation to related files in personnel.

Observe employee and management use of time clock and time cards.

Trace a sample of time cards to payrollaccounting records for those employees.

payrollaccounting

Employees who turnedin a clock card were

paid. Pay was accurate.

payrollaccounting

Trace a sample of payroll accounting records to employee time cards.

payrollaccounting

Recorded paymentswere for work actually

performed by existing employees.

Compare total time card labor to totallabor charged to jobs, processes, activi-ties, cost centers.

job cost sheet

labor 43.6 hr

job cost sheet

labor 43.6 hr

job cost sheet

labor 43.6 hr

job cost sheet

labor 43.6 hr

job cost sheet

labor 43.6 hr

job cost sheet

labor 43.6 hr

job cost sheet

labor 43.6 hr

job cost sheet

labor 43.6 hr

The hours for whichemployees were paid were

charged to production.

Perform a surprise payroll payoff, where-by employees must pick up and sign fortheir checks in the presence of a super-visor and the auditor. Investigate un-claimed checks.

Those claiming paychecks arethe appropriate employees.

1 CHAPTER 16 Audit of the Payroll and Personnel Cycle

Documents

Audit of the Payroll and Personnel Cycle of the Payroll and Personnel Cycle Chapter 20 ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 20 - 2 Learning

Audit of the Payroll and Personnel Cycle · and personnel cycle. Understand internal control and design and perform tests of controls and substantive tests of transactions for the

Payroll/Personnel Output (PPO) - National Finance … Category: Reporting Payroll/Personnel Output (PPO) 2 Payroll/Personnel Processing Flow The flowchart below illustrates NFC's applications

PAYROLL/PERSONNEL SYSTEM BASICS - UCSB … · Payroll/Personnel System Personnel Actions ... you the most recent salary scales prior to the TCS update. This chart illustrates all

December 1997 Personnel-Payroll System Checklist

AN EXAMINATION OF INTEGRATED PERSONNEL AND PAYROLL

EX Human Resources Payroll & Personnel

Personnel Policies · 3 Payroll .....24 Overtime .....25

Personnel/Position/Payroll Electronic Routing Management ... · PERSONNEL BUSINESS POLICIES AND PROCEDURES MANUAL 60.25.4 Revised 11-17 Human Resources Services 509-335-4521 Personnel/Position/Payroll

Personnel/Payroll Association – September 2008 1 Personnel/Payroll Association PPA Meeting – September 23, 2008

ONLINE PAYROLL/PERSONNEL SYSTEM USER GUIDE

Personnel/Payroll Association – October 2008 1 Personnel/Payroll Association PPA Meeting – October 28, 2008

Payroll/Personnel System Web-Based New Hire Presented by Payroll Services

Payroll Calculation: 28-Day Cycle Employees · 28-Day Cycle Employees ... • Z Covered Seasonal and Emergency Response Personnel * the number of hours before overtime is calculated/number

Payroll Authorization Form - Payroll/Personnel Authorization

Personnel and Payroll

Personnel/Payroll Association – July 2008 1 Personnel/Payroll Association PPA Meeting – July 29, 2008

Sia_ch13 - HRM & Payroll Cycle

ch15 Audit of the Payroll and Personnel Cycle

Audit of the Payroll and Personnel Cycle _ Accounting & Audting