Assertion - Execution - Audit of Payroll Cycle

Question 1

Provide the payroll cycle process

Answer 1

Human resource and payroll
Phase 1 - H/R hires employee
Phase 2 - Time worked by the employee is recorded
Phase 3 - Calculation of wages and salaries
Phase 4 - Payment of wages & salaries
Phase 5 - Posting of journals

Question 2

What is the risk with payroll

Answer 2

Payroll - often a material amount on the I/S, risks of minor error being made in determination of benefits, payroll, wages

Question 3

Provide the assertions or payroll liabilities and payroll expenses

Answer 3

Assertions:
Payroll liabilities - Existence - Payroll liabilities recorded do not exist
Completeness - Payroll liabilities owed by the entity are not recorded
Right & Obligation - Payroll liabilities are not the obligation of the entity
Accuracy, valuation, allocation - Payroll liabilities are not measured at the correct amount
Classification - Payroll liabilities are not classified in the appropriate balance sheet account
Presentation - Appropriate disclosure for payroll liabilities has not been made

Payroll expenses
Occurrence - Payroll expenses recorded did not occur
Completeness - payroll expenses incurred by the entity are not recorded
Accraucy - Payroll expenses are not recorded at the correct amount
Cut off - Payroll expenses are recorded in the wrong period
Classification - Payroll expenses are not classified in the appropriate I/S account
Presentation - Appropriateness disclosure for payroll expenses has not been made.

Question 4

Provide some procedures to use for payroll

Answer 4

1. Compare the GL wage and salaries account expenses for the year to the payroll department total for the year to ensure they agree (accuracy)
2. Compare individual department payroll expenses total with last year and the budget and obtain an explanation for significant variables (occurrence, completeness, cut-off)
3. Analyze the monthly payroll total and compare it with last year and the budget and obtain an explanation for significant variance (occurrence, completeness, accuracy)
4. Examine all disclosures to ensure that they are by relevant accounting standards (Presentation)

Question 5

Explain some risks specific to the audit in payroll

Answer 5

1. Commission expenses have decreased significantly - Commission expenses (completeness/ accuracy) - Select a sample of sales invoices and recalculate the commission, select a sample of sales invoices to recalculate terms of sales have been meeting to address whether sales have occurred
2. Salaries expenses have increased over a prior year there was no change in the total # of employees - Payroll expenses (completeness) - Review the GL account before & after the year-end to ensure that year-end payroll has been recorded
3. The last payroll of the current fiscal year & first payroll of the new fiscal is covered - Cut off. error - Review Gl account before and after year-end to ensure that year-end payroll has been recorded