ACCT3600 Lec 8 GAS Reports Flashcards
How might the auditor use GAS to verify the occurrence of payroll transactions?
- Auditor uses GAS to select sample of 20 employees from the payroll list and printout report containing the following DATA FIELDS:
Employee name, Staff ID, Date of pay period, normal pay overtime pay, tax, net pay, bank details
- Auditor then uses report and sights company records / the UNDERLYING DOC (e.g. timesheets) to validate.
How might the auditor use GAS to verify the accuracy of payroll transactions?
- Auditor uses GAS to select sample of 20 employees from the payroll list and printout report containing the following DATA FIELDS:
Normal pay (hours and rate), overtime pay (hours and rate), gross pay, tax deducuted, deductions, net pay
- Auditor then uses report to:
* agree hrs normal to time records
* agree pay rates to master qfile
* agree tax rate to tax declaration in employee HR file (e.g. if they are in the tax-free threshold)
* recalculate normal pay, overtime pay, total gross, etc.
How might auditor use exception reports to verify the occurrence of payroll?
- PAYING A TERMINATED PERSON: Print report containing employees which hold a termination “flag” where the date of termination (in the employee master file) is less than the starting date of the payroll period (in the payroll file).
- Review employee’s HR file and confirm date and final pay on termination, review documentation supporting payment made AFTER termination date.
- SOMEONE PAID TWICE: Print report containing all employees where payroll reports for a defined time range hold any duplication of an employee staff ID / name.
- Validate if employee in fact did work in 2 diff divisions in the same period, if the duplication links to 2 diff individuals and inspect relevant HR files, if pay duplication was deposited to the same employee bank acc and these details agree to HR file.
How might auditor use exception reports to verify the accuracy of payroll?
- RANGE CHECK: Print report containing employee’s where hours of work are above or below specified range.
- Sight the timesheets used as the basis for the pay made and validate authorization, follow up any misstatements with appropriate payroll officer.
- INCORRECT RATE: Print report containing all employees where rate in employee master file does not match rate in payroll report.
- Validate authorization for adjusted rate
What is SAMPLING RISK? Can it be eliminated?
Probability that auditor has reached an incorrect conclusion bc audit sampling was used rather than 100% examination.
Can be reduced to an accceptably low level by using appropriate sample size and selection method, but can never be eliminated.
What is NON-SAMPLING RISK?
Risk arising from factors, other than sample size, that cause an auditor to reach an incorrect conclusion bc (a) failure to recognize misstatements (i.e. lack of skills and experience), (b) application of an inappropriate procedure that is not linked to relevant assertion.
What are the 3 means of gathering audit evidence?
- 100% examination
- Selecting specific items (exception report)
- Audit sampling
What is STATISTICAL SAMPLING?
- Random sample selection, AND
* Use of probability theory to evaluate sample results, including measurement of sampling risk,
What is NON-STATISTICAL SAMPLING?
Sampling approaches that do not have all the characteristics of statistical sampling.
What is the advantage of statistical and non-statistical sampling?
Statistical Sampling: Defensibility in court bc quantification of sampling risk.
Non-statistical Sampling: greater application of audit experience / judgement, misstatements in a population not random.
What is STRATIFICATION?
Auditor divides population into SUB-POPULATIONS, each with an identifying characteristic.
e.g. Test 100% AR accounts greater than $1M, 10% of accounts for strata $10K - $1M, 2% of accounts less than $10K.
What is the advantage of stratification?
Reduce audit COSTS, while increasing audit EFFICIENCY as it allows auditor to REDUCE SAMPLE SIZE by REDUCING VARIABILITY within each stratum without a proportional increase in SAMPLING RISK.
How is the conclusion drawn from stratification technique limited?
Results of procedures applied to stratified sample can only be projected to the items that make up that stratum. To conclude on the entire population, auditor needs to consider the impact of potential misstatement in other strata.
How is stratification consistent with the requirements of sampling?
Every item in the total population still has a chance of being selected, but probability of being selected varies.
What is the RISK OF FRAUD that auditor is concerned with?
Risk that material misstatements in FS resulting from fraud will not be detected.
