Listed below is a selection of items from the payroll processing internal control questionnaire in Exhibit 13A2.
Question:
1. Are names of terminated employees reported in writing to the payroll department?
2. Are authorizations for deductions, signed by the employees, on file?
3. Is the timekeeping department (function) independent of the payroll department?
4. Are timekeeping and cost accounting records (such as hours, dollars) reconciled with payroll department calculations of wage and salaries?
Required:
For each question:
a. Identify the control objective to which the question applies.
b. Specify one test of controls audit procedure an auditor could use to determine whether the control was operating effectively (see Exhibit 139 for procedures).
c. Using your business experience, your logic, and/or your imagination, and give an example of a misstatement caused by error or fraud that could occur if the control was absent orineffective.
EXHIBIT 13-9 Control Tests for Payroll CONTROL OBJECTIVE A. Personnel Files and Compensation Documents 1. Select a sample of personnel files: a. Review personnel files for complete information on employment date, authority to add to payroll, job classification Authorization Classification Authorization Authorization wage rate, and authorized deductions b. Trace pay rate to union or other contracts or other rate authorization. Trace salaries to directors' minutes for authorization C. Trace pay rate and deduction information to payroll department files used in payroll preparation. Completeness 2. Obtain copies of pension plans, stock options, profit sharing, and bonus plans. Review and extract relevant portions that Validity Completeness Authorization relate to payroll deductions, fringe benefit expenses, accrued liabilities, and financial statement disclosure 3. Trace management compensation schemes to minutes to verify board of directors' approval Accou nting ayroll 1. Select a sample of payroll register entries: a. Vouch employee identification, pay rate, and deductions to personnel files or other authorizations b. Vouch hours worked to time clock records and supervisor's approval. Authorization Validity Authorization c. Recalculate gross pay, deductions, net pay d. Recalculate a selection of periodic payrolls e. Vouch to cancelled payroll cheque. Examine employees' endorsement or payroll distribution report details Accuracy Validity Authorization Completeness Accou 2. Select a sample of time-clock entries. Note supervisor's approval and trace to periodic payroll registers 3. Vouch a sample of periodic payroll totals to payroll bank account transfer vouchers and vouch payroll bank account 4. Trace a sample of employees' payroll entries to individual payroll records maintained for tax reporting purposes. Reconcile Completeness 5. Review computer-printed error messages for evidence of the use of check digits, valid codes, limit tests, and other input, Accuracy 6. Trace payroll information to management reports and to general ledger account postings nting deposit slip for cash transfer. total of employees' payroll records with payrolls paid for the year processing, and output application controls. Investigate correction and resolution of errors. Accounting Validity 7. Obtain control of a periodic payroll and conduct a surprise distribution of paycheques C. Cost Distribution Reports 1. Select a sample of cost accounting analyses of payroll: a. Reconcile periodic totals with payroll payments for the same periods Vouch to time records account(s) accounting analyses Completeness Validity Accounting Classification 2. Trace cost accounting labour cost distributions to management reports and postings in general ledger and subsidiary 3. Select a sample of labour cost items in (a) ledger accounts and/or (b) management reports. Vouch to supporting cost Validity
Step by Step Answer:
1 a Recorded payroll transactions are valid no fictitious employees b Select a sample of personnel f...View the full answer
Auditing An International Approach
ISBN: 978-0071051415
6th edition
Authors: Wally J. Smieliauskas, Kathryn Bewley
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