Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
PART IV
Chapters 17-22
APPLICATION
OF THE AUDIT
PROCESS TO
OTHER CYCLES
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
AUDIT OF THE PAYROLL
AND PERSONNEL CYCLE
The Staff Auditor Must Never
“Simply Follow Orders”
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
ACCOUNTS AND TRANSACTIONS IN THE
PAYROLL AND PERSONNEL CYCLE
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 generally
accepted accounting principles.
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
BUSINESS FUNCTIONS IN
THE CYCLE AND
RELATED DOCUMENTS
AND RECORDS
The payroll and personnel cycle begins with the
hiring of personnel and ends with payment to the
employees for the services performed and to the
government and other institutions for the withheld
and accrued payroll taxes and benefits.
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
Personnel Records
Deduction Authorization Form
Rate Authorization Form
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
Accounts in the Payroll and Personnel Cycle
FIGURE 17 - 1
*Separate operating accounts
for payroll also normally include
officers’ salaries and bonuses,
office salaries,sales salaries and
commissions,and indirect manu-
facturing labor,These accounts
have the same relationship to
accrued wages and withheld
taxes and other deductions
that is shown for direct labor.
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
Time Card
Job Time Ticket
Summary Payroll Report
Payroll Journal
Payroll Master File
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
Payroll Check
Payroll Bank Account Reconciliation
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
Preparation of Payroll Tax Returns
and
Payment of Taxes
W - 2 Form
Payroll Tax Returns
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
FIGURE 17 - 2
Methodology for
Designing Tests of
Controls and
Substantive Tests of
Transactions for the
Payroll and Personnel
Cycle
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
Understanding Internal ControlPayroll
and Personnel Cycle
Adequate Separation of Duties
Proper Authorization
Adequate Documents and Records
Physical Control Over Assets and Records
Independent Checks on Performance
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
Preparation of Payroll Tax Forms
Payment of the Payroll Taxes Withheld and
other withholdings on a Timely Basis
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
Inventory and Fraudulent
Payroll Considerations
Relationship between Payroll
and Inventory Valuation
Tests for Nonexistent Payroll
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
FIGURE 17 - 3
Methodology for
Designing Tests of
Details of Balances
for Payroll Liabilities
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
Design and Perform Tests
of Details of Balances for
Liability and Expense Accounts
(Phase III)
Amounts Withheld from Employees’ Pay?
Accrued Salaries and Wages?
Accrued Commissions?
Accrued Bonuses?
Accrued Vacation Pay,Sick Pay,or Other Benefits?
Accrued Payroll Taxes?
Tests of Details of Balances for Expense Accounts
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
FIGURE 17 -4
Types of Audit Tests for the Payroll and Personnel Cycle
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
SOURCE
OF
INFORMATION
FOR
PAYROLL AND PERSONNEL
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
Accrued payroll expenses
payroll master file
Imprest payroll account
Personnel records
Payroll and personnel cycle
Time card