Auditing and assurance services 14e by arens chapter 20

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Audit of the Payroll and Personnel Cycle Chapter 20 http://www.authorstream.com/shengv n/ ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 5-5 Learning Objective Identify the accounts and transactions in the payroll and personnel cycle ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 20 - Accounts 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 ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 20 - Accounts in the Payroll and Personnel Cycle Cash in Bank Payment for salaries Accrued Wages, Salaries, Bonuses, and Commissions Payment Beginning balance Direct Labor Earned wages, salaries, etc Ending balance Payment for payroll taxes Withheld Income Taxes and Other Deductions Payment Beginning balance Payroll withholding Ending balance ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 20 - Accounts in the Payroll and Personnel Cycle In most systems the accrued wages and salaries account is used only at the end of an accounting period ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 20 - Learning Objective Describe the business functions and the related documents and records in the payroll and personnel cycle ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 20 - Business Functions in the Cycle and Related Documents and Records The payroll and personnel cycle… Begins Personnel Hiring Ends Payments ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 20 - Personnel and Employment  Personnel records  Deduction authorization form  Rate authorization form ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 20 - Timekeeping and Payroll Preparation Time Card Job Time Ticket Payroll Transaction File Payroll Journal Timekeeping and Payroll Preparation ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 20 - Payroll Master File A payroll master file is used for recording each payroll transaction for each employee and maintaining total employee wages paid for the year to date ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 20 - 10 Payroll Tax Forms and Payments  Preparation of payroll tax forms  Timely payment of the payroll taxes withheld and other withholdings ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 20 - 16 Inventory and Fraudulent Payroll Considerations  Relationship between payroll and inventory valuation  Tests for nonexistent employees ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 20 - 17 Methodology for Designing Tests of Balances for Payroll Liabilities Identify client business risks affecting payroll liability accounts Phase I Set tolerable misstatement and assess inherent risk Phase I for payroll liability accounts Assess control risk for the Phase I payroll and personnel cycle ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 20 - 18 Methodology for Designing Tests of Balances for Payroll Liabilities Design and perform tests of controls and substantive tests Phase II of transactions for the payroll and personnel cycle ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 20 - 19 Methodology for Designing Tests of Balances for Payroll Liabilities Design and perform analytical procedures Phase III for the payroll and personnel cycle Design tests of Audit procedures details of payroll Sample size accounts balances to satisfy Items to select balance-related Timing audit objectives ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley Phase III 20 - 20 Learning Objective Design and perform analytical procedures for the payroll and personnel cycle ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 20 - 21 Analytical Procedures for the Payroll and Personnel Cycle Analytical procedure Possible misstatement Compare payroll expense account balances with previous years Misstatement of payroll expense accounts Compare direct labor as a percentage of sales with previous years Misstatement of direct labor and inventory ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 20 - 22 Analytical Procedures for the Payroll and Personnel Cycle Analytical procedure Possible misstatement Compare commission expense as a % of sales with previous years Misstatement of commission expense and commission liability Compare payroll tax expense as a % of salaries and wages with prior year Misstatement of payroll tax expense and payroll tax liability Compare accrued payroll tax accounts with prior year Misstatement of accrued payroll taxes and expense ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 20 - 23 Learning Objective Design and perform tests of details of balances for accounts in the payroll and personnel cycle ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 20 - 24 Two Major Balance-related Audit Objectives Accruals in the trial balance are stated at the correct amounts (accuracy) Transactions in the payroll and personnel cycle are recorded in the proper period (cutoff) ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 20 - 25 Tests of Details of Balances for Liability Accounts       Amounts withheld from employees’ pay Accrued salaries and wages Accrued commissions Accrued bonuses Accrued vacation pay, sick pay, or other benefits Accrued payroll taxes ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 20 - 26 Tests of Details of Balances for Expense Accounts      Officers’ compensation Commissions Payroll tax expense Total payroll Contract labor ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 20 - 27 Presentation and Disclosure Objectives  Required disclosures are not extensive  Some complex transactions require footnote disclosure ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 20 - 28 Types of Audit Tests for the Payroll and Personnel Cycle Payroll Liabilities Cash in Bank Direct Labor and Payroll Expenses Payments Expenses Audited by TOC, STOT, and AP Audited by TOC, STOT, and AP Ending balance Ending balance Audited by AP and TDB TOC + STOT + AP + TDB = Sufficient appropriate evidence per GAAS ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 20 - 29 End of Chapter 20 ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 5-5 ... functions and the related documents and records in the payroll and personnel cycle 201 2 Prentice Hall Business Publishing, Auditing 14/e, Arens/ Elder/Beasley 20 - Business Functions in the Cycle and. .. Publishing, Auditing 14/e, Arens/ Elder/Beasley 20 - 12 Learning Objective Understand internal control and design and perform tests of controls and substantive tests of transactions for the payroll and. .. Auditing 14/e, Arens/ Elder/Beasley Phase III 20 - 20 Learning Objective Design and perform analytical procedures for the payroll and personnel cycle 201 2 Prentice Hall Business Publishing, Auditing
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