Chapter 8 - Employee costs Flashcards
What are two risks relating to calculating wages and salaries?
The company may pay employees too much money.
The company may pay employees who have left.
What are three control objectives relating to calculating wages and salaries?
Employees are only paid for work that they have done.
Gross pay has been calculated correctly and authorised.
Net pay has been calculated correctly.
What are ten controls relating to calculating wages and salaries?
Staffing and segregation of duties
Maintenance of personnel records
Authorisation
Recording of changes in personnel and pay rates
Recording of hours worked by timesheets, clocking in and out arrangements
Review of hours worked
Recording of advances of pay
Holiday pay arrangements
Answering queries
Review of wages against budget
What are seven tests of controls regarding calculating wages and salaries?
Check that the wages and salary summary is approved for payment.
Confirm that procedures are operating for authorising changes in rates of pay, overtime, and holiday pay.
Obtain evidence that staff only start being paid when they join the company, and are removed from the payroll when they leave the company.
Check that the engagement of new employees and discharges of former employees have been confirmed in writing.
Check that the calculations of wages and salaries are being checked.
For wages, check calculation of gross pay with authorised pay rates, production records and clock cards/timesheets.
For salaries, verify that gross salaries and bonuses are in accordance with personnel records, contracts of employment.
What are three risks regarding recording of wages and salaries?
The various elements of pay might not be recorded correctly in the payroll.
Amounts paid to employees might not be reflected in the cash at bank account.
Pay might not be recorded correctly in the nominal ledger.
What are five control objectives regarding recording of wages and salaries?
Gross and net pay and deductions are accurately recorded on the payroll.
Wages and salaries are correctly recorded in the nominal ledger.
Wages and salaries paid are recorded correctly in cash records.
All deductions have been calculated correctly and are authorised.
The correct amounts are paid to HMRC.
What are eight controls regarding the recording of wages and salaries?
bases for compilation of payroll (for example, clock cards, overtime records, agreed hours)
arrangements for the preparation, checking (reconciling to payroll information) and approval of payroll
procedures for dealing with non-routine matters
maintenance of separate employees’ personnel records
one-for-one checking of payroll details back to independently maintained personnel records
reconciliation of total pay and deductions between one payday and the next
comparison of actual pay totals with budget estimates or standard costs and the investigation of differences between them
agreement of gross earnings and total tax deducted with taxation returns
What are the tests of controls regarding recording of wages and salaries?
Perform reconciliations with previous week’s payroll, clock cards/timesheets/job cards and costing analyses, production budgets
For wages, checking:
- Additions of payroll
- Totals of payroll detail selected to summary of payroll
- Additions and cross-casts of summary
- Postings of summary to nominal ledger
- Net cash column to the cash at bank account
For salaries, checking:
- Additions of payroll
- Totals of salaries details to summary
- Additions and cross-casts of summary
- Postings of summary to nominal ledger
- Total of net pay column to the cash at bank account
For PAYE and NI they should carry out the following tests:
- Scrutinise the nominal ledger accounts maintained to see appropriate deductions have been made.
- Check that the payments to HMRC are correct.
What are the two key risks regarding payment of wages and salaries?
The key risks here are that people who are not employees are paid and those that are employees are not paid.
What is the control objective regarding payment of wages and salaries?
The overriding control objective is that the correct employees are paid.
What are eight controls regarding payment of wages and salaries?
Segregation of duties
Authorisation of wage cheque cashed
Custody of cash
Verification of identity
Recording of distributions
Preparation and authorisation of cheques and bank transfer lists
Comparison of cheques and bank transfer list with payroll
Maintenance and reconciliation of wages and salaries nominal ledger account
What are nine tests of controls regarding payment of wages and salaries?
arrange to attend the pay-out of wages to confirm that the official procedures are being followed.
before the wages are paid compare payroll with wage packets to ensure all employees have a wage packet.
examine receipts given by employees; check unclaimed wages are recorded in unclaimed wages book.
check that no employee receives more than one wage packet.
check entries in the unclaimed wages book with the entries on the payroll.
check that unclaimed wages are banked regularly.
check that unclaimed wages books show reasons why wages are unclaimed.
check pattern of unclaimed wages in unclaimed wages book; variations may indicate failure to record.
for salaries, check that comparisons are being made between each month’s payroll net pay summary and examine paid cheques or a certified copy of the bank list for employees paid by cheque or bank transfer.
