Chapter 20 Flashcards
The liability accounts associated with payroll; these include accounts for accrued salaries and wages, accrued commissions, accrued bonuses, accrued benefits, and accrued payroll taxes
Accrued Payroll Expenses
Records that include data such as the date of employment, personnel investigations, rates of pay, authorized deductions, performance evaluations, and termination of employment
Human Resource Records
A bank account where the exact amount of payroll for the pay period is transferred by check or wire transfer from the employer’s general cash account
Imprest Payroll Account
The transaction cycle that begins with the hiring of personnel, includes obtaining and accounting for services from the employees, and ends with the payment to the employees for the services performed
Payroll and Personnel Cycle
A computer file for recording each payroll transaction for each employee and maintaining total employee wages paid and related data for the year to date
Payroll Master File
A document indicating the time that the employee started and stopped working each day and the number of hours worked
Time Record
The main differences between the payroll and personnel cycle and other cycles are:
1) Only one class of transactions for payroll exist
2) Transactions are generally far more significant than related balance sheet accounts
3) Internal controls over payroll are effective for almost all companies, even small ones
The overall objective in the audit of the payroll and personnel cycle is
To evaluate whether the account balances affected by the cycle are fairly stated in accordance with applicable accounting standards
The payroll and personnel cycle begins with BLANK and ends with BLANK
Hiring employees and paying employees for services performed
Adequate controls are necessary to prevent misstatements in:
1) Prepare time records by employees
2) summarize and calculate gross pay, deductions, and net pay
3) Payment of payroll
4) Prepare payroll records
Used as a holding account to clear payroll checks and also referred to as a zero dollar account
Imprest Payroll Account
In order by employee
Payroll Master File
Internal control for payroll is normally BLANK and BLANK
Highly structured and well controlled to manage cash disbursed
Because processing payroll is similar in most organizations
Companies commonly use an outside payroll service for processing payroll
It is usually BLANK for companies to establish good control in the payroll and personnel cycle
Easy
Test of control and substantive tests of transactions procedures are the BLANK means of verifying account balances in the payroll and personnel cycle
Most important
The three reasons audits have a minimal risk of material misstatements in the payroll and personnel cycle
1) Employees are likely to complain to management if they are underpaid
2) All payroll transactions are typically uniform and uncomplicated
3) Payroll transactions are subject to audit by federal and state governments for income tax withholding, social security, and unemployment taxes
The payroll function should be independent of the
Human Resource Department
The two major balance-related audit objectives in testing payroll liabilities are
1) Accruals in the trial balance are stated at the correct amounts (accuracy)
2) Transactions in the payroll and personnel cycle are recorded in the proper period (cutoff)
Key internal control for Payroll (occurrence)
Time records approved by supervisor
Key internal control for Payroll (completeness)
Payroll checks are prenumbered
Key internal control for Payroll (accuracy)
Calculations and amounts are internally verified
Key internal control for Payroll (posting and summarization)
Payroll master file is internally verified
Key internal control for Payroll (classification)
Account classifications are internally verified
Key internal control for Payroll (timing)
Dates are internally verified
Common Test of Controls (occurrence)
Examine time records for indication of approvals
Common Test of Controls (completeness)
Account for a sequence of payroll checks
Common Test of Controls (accuracy)
Examine indication of internal verification
Common Test of Controls (posting and summarization)
Examine indication of internal verification
Common Test of Controls (classification)
Examine indication of internal verification
Common Test of Controls (timing)
Examine indication of internal verification
Common Substantive test of transaction (occurrence)
Examine cancelled checks for proper endorsement
Common Substantive test of transaction (completeness)
Prove the bank reconciliation
Common Substantive test of transaction (accuracy)
Recompute hours worked from time records
Common Substantive test of transaction (posting and summarization)
Test clerical accuracy by footing payroll journal
Common Substantive test of transaction (classification)
Compare classification with chart of accounts
Common Substantive test of transaction (timing)
Compare date on check with date the check cleared
