1、Chapter 12Audit of Payroll Cycle1Lecturer 陳丹Topic list Accounts in the payroll and personnel CycleRelated documents and records in the payroll and personnel cycleInternal control and tests of controls for payroll2Accounts in thePayroll and Personnel CycleAccrued Wages, Salaries,Bonuses, and Commissi

2、onsPaymentBeginningbalanceEarned wages,salaries, etc.Ending balanceDirectLaborCash in BankPayment forsalariesPayment forpayroll taxesWithheld Income Taxesand Other DeductionsPaymentBeginningbalancePayrollwithholdingEnding balance3Accounts in thePayroll and Personnel CycleCash in BankPayment forsalar

3、iesPayment forpayroll taxesWithheld Income Taxesand Other DeductionsPaymentBeginningbalancePayrollwithholdingEnding balanceAccrued PayrollTax ExpensePaymentBeginningbalancePayrolltax expenseEnding balancePayroll Tax Expense4Classes of Transactions Business Functions Documents and RecordspayrollPerso

4、nnel and employment Personnel recordsDeduction authorization formRate authorization formTimekeeping and payroll preparationTime card / time ticketPayroll journalPayroll master filePayroll general ledgerPayment of payroll Payroll checkPayroll bank account reconciliation 5Personnel department (HR) Fun

5、ction:Provides an independent source for interviewing and hiring qualified personnel.Independent source of records for the internal verification of wage information, including addition and deletion from the payroll, and changes in wages and deductions.6Personnel department (HR) Documentations:Person

6、nel records include such data as the date of employment, personnel investigations, rates of pay, authorized deductions, performance evaluations, and termination of employment. Deduction authorization form authorizes payroll deductions.Rate authorization form authorizes the rate of pay, which is base

7、d on a labor contract, authorization by mgt, or in the case of officers, authorization from the board of directors.7Five types of control activities relevant to payroll audit1. adequate separation of duties2. proper authorization 3. adequate documents and records4. physical control over assets and r

8、ecords5. independent checks on performance 8Five types of control activities relevant to payroll auditadequate separation of duties to prevent overpayments and payments to nonexistent employeesPersonnel department / timekeeping / payroll preparation / payment Custody and distribution of signed payro

9、ll check / preparation of payroll bank account reconciliation 9Payroll bank account reconciliation independent reconciliation of the imprest payroll bank accountImprest payroll account is a separate payroll account in which a small balance is maintained. A check for the exact amount of each net payr

10、oll is transferred from the general bank account to the imprest account immediately before the distribution of the payroll.102. proper authorizationTransaction or eventdocumentationauthorizerAdditions and deletions of employees from the payrollPersonnel recordsHRDeductionsDeduction authorization for

11、mHRPay rateRate authorization formHRHours worked by each employee, including overtimeTimecardEmployees supervisor, eg. foreman11Five types of control activities relevant to payroll audit3. adequate documents and recordsSequentially pre-numbered and accounted for4. physical control over assets and re

12、cordsAccess to payroll checks, unsigned and signed, should be restricted.Payroll checks should be signed by a responsible employee.Unclaimed checks should be returned for redeposit.If checks are signed by a signature machine, access to the machine should be restricted.12Five types of control activit

13、ies relevant to payroll auditFive types of control activities relevant to payroll audit5. independent checks on performancePayroll computations should be independently verified, including comparison of batch totals to summary reports.A member of management or other responsible employee should review

14、 the payroll output for any obvious misstatements or unusual amountsResponsible employee compare the names on cancelled checks with time cards and other records for authorized signatures and reasonableness of the endorsements.13SummaryIdentify the accounts and the classes of transactions in the payr

15、oll and personnel cycle.Describe the business functions and the related documents and records in the Payroll and personnel cycle and personnel cycle.Understand internal control and design and perform tests of controls for payroll.1415Past Exam QuestionsJune 14 Q1aDec 2011 Q1abDec 2008 Q1bDec 2011 Q1

16、ab16Common mistakesWaste time by writing out the deficiencies from the scenario It would have been better to use headings to identify to the marker which deficiency was being addressed, or to give brief details within the explanation of the implication. Consider Chuck Industries paying wages in cash

17、 as a deficiencyThis is not the case as many businesses pay their employees in cash, and as long as the process is well controlled no issues should arise. 17Just paraphrase the deficiency without considering how this would impact the company Joiners and leavers not being notified to the payroll depa

18、rtment on time leads to incorrect salaries being paid out. No monitoring/supervision of the clocking in/out process implies that employees could clock in and out for each other.18Chuck Industries could continue making payments to employees who have left, or pay new employees late. Payroll expense wo

19、uld be incorrect and also possible loss of employee goodwill. 19Without supervision/monitoring of the clocking in or out process, employees could try to boost their hours worked by clocking out several hours after their shift has finished, this will lead to invalid and unauthorised overtime payments

20、. payroll cost for Chuck Industries will be substantially increased.20vague recommendation The HR department should promptly inform payroll department of joiners and leavers.It does not detail how to resolve the issue of HR staff members being on holiday and therefore still fail to notify payroll department on time.21Durin