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    Auditing: Control & Substantive Tests in Personnel & Payroll by David N. Ricchiute

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    yunus wariss
    This document discusses controls and substantive tests for personnel and payroll functions. It covers: 1. The nature of personnel and payroll cycles, including acquiring employee resources in exchange for payment obligations. 2. Key personnel and payroll documents like records, timesheets, registers, and earnings records. 3. Important internal control objectives for authorization, execution, recording, access to assets, and segregation of duties. 4. Tests of controls auditors can perform on payroll registers, summaries, labor distributions, personnel files, and paycheck distribution. 5. Assessing control risk and determining whether substantive tests of payroll obligations, valuations, and disclosures are needed.

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    Auditing: Control & Substantive Tests in Personnel & Payroll by David N. Ricchiute

    Uploaded by

    yunus wariss
    45 views19 pages
    This document discusses controls and substantive tests for personnel and payroll functions. It covers: 1. The nature of personnel and payroll cycles, including acquiring employee resources in exchange for payment obligations. 2. Key personnel and payroll documents like records, timesheets, registers, and earnings records. 3. Important internal control objectives for authorization, execution, recording, access to assets, and segregation of duties. 4. Tests of controls auditors can perform on payroll registers, summaries, labor distributions, personnel files, and paycheck distribution. 5. Assessing control risk and determining whether substantive tests of payroll obligations, valuations, and disclosures are needed.

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    This document discusses controls and substantive tests for personnel and payroll functions. It covers: 1. The nature of personnel and payroll cycles, including acquiring employee resources in exchange for payment obligations. 2. Key personnel and payroll documents like records, timesheets, registers, and earnings records. 3. Important internal control objectives for authorization, execution, recording, access to assets, and segregation of duties. 4. Tests of controls auditors can perform on payroll registers, summaries, labor distributions, personnel files, and paycheck distribution. 5. Assessing control risk and determining whether substantive tests of payroll obligations, valuations, and disclosures are needed.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    45 views19 pages

    Auditing: Control & Substantive Tests in Personnel & Payroll by David N. Ricchiute

    Uploaded by

    yunus wariss
    This document discusses controls and substantive tests for personnel and payroll functions. It covers: 1. The nature of personnel and payroll cycles, including acquiring employee resources in exchange for payment obligations. 2. Key personnel and payroll documents like records, timesheets, registers, and earnings records. 3. Important internal control objectives for authorization, execution, recording, access to assets, and segregation of duties. 4. Tests of controls auditors can perform on payroll registers, summaries, labor distributions, personnel files, and paycheck distribution. 5. Assessing control risk and determining whether substantive tests of payroll obligations, valuations, and disclosures are needed.

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    © All Rights Reserved
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    Download as ppt, pdf, or txt
    of 19

    AUDITING

    CHAPTER 14
    Control & Substantive
    Tests in Personnel &
    Payroll
    By
    David N. Ricchiute
    TOPICS
    Nature personnel, payroll functions
    Controls over personnel, payroll
    activities
    Auditors consideration of controls
    Substantive tests of payroll accounts
    Earnings manipulation in payroll,
    postretirement benefits

    2 GBW 8th ed., Ch. 14


    NATURE OF
    PERSONNEL, PAYROLL
    CYCLE
    Resources (services) acquired in
    exchange for obligations to pay
    Obligations to employees are paid

    3 GBW 8th ed., Ch. 14


    PERSONNEL, PAYROLL
    DOCUMENTS
    Personnel records
    Time record
    Payroll register
    Employee
    earnings record

    4 GBW 8th ed., Ch. 14


    PERSONNEL RECORDS
    Salary or wage rates
    Payroll deductions
    Employee signatures
    Job classification
    Performance evaluation

    5 GBW 8th ed., Ch. 14


    INTERNAL CONTROL
    OBJECTIVES
    Authorization
    Execution
    Recording
    Access to assets
    Segregation of duties

    6 GBW 8th ed., Ch. 14


    AUTHORIZATION:
    Objective, Errors, Procedure
    Objective Error Procedure
    Employees Excessive Clear hiring
    hired training, policies,
    according to relocation costs; procedures;
    criteria equal opportunity updated records
    Compensati Excessive labor Updated listings
    on costs; violation pay rates,
    deductions union contracts; deductions;
    according to inaccurate review, approval
    authorizatio accruals
    n
    Adjustments Increased pay, Clear adjustment
    authorized
    7 overstated labor
    GBW 8th ed., Ch. 14 policies,
    EXECUTION:
    Objective, Errors, Procedure
    Objective Error
    ProcedureMisappropriated
    Payroll, Personnel,
    personnel cash from payroll
    procedures paychecks for procedures
    authorized terminated, fictitious manual
    employees Periodically
    verify employee
    assignments
    All payroll Misappropriated Prenumber,
    disbursemen cash, overstated control time
    ts for labor costs records,
    recognized
    8 GBW 8th ed., Ch. 14 paychecks,
    liability adjustment
    RECORDING:
    Objective, Errors, Procedure
    Objective Error Procedure
    Amounts due Payroll costs Document
    employees at inaccurate; account
    proper misstated distribution
    amounts, expenses; procedures;
    time periods, details do reconcile ledgers,
    classification not agree journals; physical
    barriers unused
    documents,
    forms
    9 GBW 8th ed., Ch. 14
    ACCESS:
    Objective, Errors, Procedure
    Objective Error
    Procedure
    Access to Records, Prenumber, contro
    personnel, forms, forms, documents
    payroll documents Segregate
    records, misused; authorizing,
    forms, unauthorize executing,
    documents d labor costs recording;
    restricted to maintain listings
    authorized authorized
    personnel signatories
    10 GBW 8th ed., Ch. 14
    CONSIDERING
    INTERNAL CONTROL:
    Obtain understanding
    Payroll
    Preliminary review

    Document system
    Perform transaction walk-
    through
    Determine whether controls
    are potentially reliable in
    assessing control risk below
    maximum
    Test controls

    11 GBW 8th ed., Ch. 14


    TESTS OF CONTROLS:
    Personnel & Payroll
    Obtain payroll register
    Verify mathematical accuracy
    Obtain payroll summary, labor distribution
    Verify accuracy of summaries; compare totals
    to payroll register
    Trace totals to GL & cost accounting records
    Select random sample employees &
    obtain personnel file
    Examination for completeness, authorization
    Compare pay rates, deductions
    Trace from register to employee records

    12 GBW 8th ed., Ch. 14


    TESTS OF CONTROLS:
    Distribution Paychecks
    Obtain sample canceled payroll
    checks
    Trace details to payroll register
    Compare endorsements to signatures
    in file
    Personally distribute checks to
    properly identified employees

    13 GBW 8th ed., Ch. 14


    ASSESS CONTROL RISK
    Review system documentation
    Review results of controls tests
    Determine whether existing controls are
    Effective
    Can be relied upon to
    Assess control risk below maximum
    Assess detection risk above minimum
    Restrict substantive tests of payroll

    14 GBW 8th ed., Ch. 14


    SUBSTANTIVE TESTS:
    Payroll
    Obligations, Valuation
    Determine by analytical procedures,
    reasonableness
    Obligations, Valuation, Completeness
    Determine reasonableness of accruals
    Presentation & Disclosure
    Review to determine classification,
    adequate disclosures

    15 GBW 8th ed., Ch. 14


    ANALYTICAL
    PROCEDURES: Payroll &
    Accruals
    Compare ratios
    Total payroll expenses & accrued
    expense with prior years; &
    adjusted for pay rate changes
    Direct labor to budgets, sales,
    prior years
    Commissioned sales payroll: sales
    X average commission rates
    Payroll tax expense to payroll with
    prior years

    16 GBW 8th ed., Ch. 14


    MANIPULATED
    EARNINGS:
    Capitalized Costs
    CEO, CFO, others at Safety-
    capitalized payroll costs
    Kleen
    to unrealized contingent-contract
    claims to understate period expenses
    Board investigation reduced income for
    1997 1999 by $534 million
    SEC filed suit alleging management
    falsely represented financial statements

    17 GBW 8th ed., Ch. 14


    POST RETIREMENT
    BENEFITS:
    Health Care
    Benefits based on estimates
    Off-balance sheet financing
    Pay-as-you-go system
    Management incentives to
    minimize for little earnings effect
    Auditor incentives to ensure fair
    presentation

    18 GBW 8th ed., Ch. 14


    AUDIT JUDGMENT

    Required for
    Postretirement benefits other
    than pensions
    Health care obligations

    19 GBW 8th ed., Ch. 14

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